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COPYRIGHT DEPOSED 



THE UNIVERSITY OF WISCONSIN 
DEPARTMENT OF ECONOMICS 



AN OUTLINE 



OF THE 



ELEMENTS OF ECONOMICS 



WILLIAM H. KIEKHOFBR 

H 

Associate Professor of Economics 



With Reading References to 
Ely's Outlines of Economics 
Marshall's Readings in Indus- 
trial Society 
Marshall, Wright and Field's 
Materials for the Study of 

Elementary Economics 
Hamilton's Current Economic 
Problems . 



SECOND REVISED EDITION 

Published by the Univebsity fob the Use of 
Classes in 1918-20 



MADISON 
1918 






Copyright 1917 and 1918 by 
William H. Kiekhofer 



All Rights Reserved 



Published September 1917 
Second Edition September 1915 



NOV -4 1918 



©CI.A506450 



CONTENTS 



Part I — Modern Industrial Society 
Chapter ' Page 

Plan of the Course 5 

I. The Nature and Scope of Economics 9 

II. A Survey of Modern Industrial Life 13 

III. Some Fundamental Features and Assumptions of the 

Present Economic System • • 15 

IV. The Evolution of Economic Society • • 17 

V. The Fundamental Concepts of Economics 20 

Part II — Consumption 

VI. Consumption • • 23 

Part III — Production 

VII. Production 27 

VIII. Business Organization 30 

IX. The Movement Toward Industrial Combination 35 

Part IV — Valuation 

X. Value and Price 38 

XI. Monopoly and Monopoly Price 46 

Part V — Exchange 

XII. Money Exchange 49 

XIII. Credit and Banking 53 

XIV. Some Monetary Problems 57 

XV. Foreign Exchange and International Trade 61 

XVI. Tariff Policies 64 



Part VI — Distribution , 

XVII. The Marginal Productivity Theory of Distribution 66 

XVIII. The Rent of Land 69 

XIX. The Wages of Labor 74 

XX. The Interest of Capital 78 

XXI. The Profits of the Entrepreneur 82 

XXII. The Distribution of Wealth Among People 85 

Part VII — Problems of Industrial Organization 

XXIII. Capitalism and the Wages System 86 

XXIV. The Factory System 88 

XXV. Evils in the Machine Process 89 

XXVI. Economic Transformation of the Home , 90 



TABLE OF CONTENTS 



Chapter 

XXVII. 

XXVIII. 

XXIX. 

XXX. 

XXXI. 



XXXII. 



XXXIII. 



XXXIV. 



XXXV. 
XXXVI. 



XXXVII. 



XXXVIII. 



XXXIX. 

XL. 
XLI, 



XLII. 
XLIII. 
XLIV. 

XLV. 



Part VIII — Labor Problems 

Page 

The Nature of Labor Organizations 91 

Labor Union Policies 92 

Class Differentiation and Industrial Conflict ........ 94 

Industrial Peace 96 

Labor Legislation 98 

Part IX — Population Problems 
The Problems of a Growing Population 100 

Part X — The Problem of Crises 
Crises and the Business Cycle • • 102 

Part XI — Transportation Problems 
Transportation Problems 104 

Part XII — Insurance Prorlems 

Life Insurance 109 

Economic Insecurity and Social Insurance 112 

Part iXIII — Agricultural Problems 
Some Problems of Agricultural Economics 114 

Part XIV — Problems of Speculation 
The Problem of Organized Speculation 116 

Part XV — Problems of Public Finance 

Public Expenditures 120 

The Sources of Public Revenue 122 

Taxation 124 

Part ^VI — Economic Policies 

The Policy of Mercantilism 128 

The Policy of Laissez-Paire 129 

The Policy of Government Control 130 

The Proposal of Socialism 133 

Suggestions Concerning Topics 137 

Suggested Topics 139 



PLAN OF THE COURSE 



Methods of Instruction 

The course in "Elements, in Economies" extends through- 
out the year, carrying four credits per quarter. The forty- 
five chapters of this Outline will be covered in one year's 
work. The chapters will be seen to develop four main sub- 
jects, namely, modern industrial society, economic principles, 
economic problems, and economic policies. An attempt will 
be made to make the work of each quarter as complete in it- 
self as possible. To accomplish this purpose it may be nec- 
essary to change the sequence of some of the chapters. 

Five methods of instruction are used in the course : the lec- 
ture, the class discussion, the written exercise, collateral read- 
ing, and the personal conference. 

The Lecture. — In the two lectures per week some descrip- 
tive material will be presented, due to the division of labor be- 
tween the lecture and class discussion, but it will always be the 
main purpose of the lecture to explain difficult points, to cor- 
relate, to apply, and if possible to inspire. 

The Class Discussion. — The class will be divided into sec- 
tions of approximately twenty students each for the purpose of 
discussing the subject upon the basis of textbook study and col- 
lateral reading. The meeting of the section is not for the pur- 
pose of oral "quizzing" or examination, but for developing the 
subject by the method of question and answer. The class dis- 
cussion aims at clarifying the subject for the student, and is a 
coordinate branch of instruction with the lecture. 

Written Exercises. — Exercises involving a review or applica- 
tion of economic principles previously presented and designed 
particularly to develop the student's power of independent 
thinking will be assigned from time to time throughout the yea]'. 
Students will be required to hand in to their instructors a 



6 ELEMENTS OF ECONOMICS 

written discussion of these exercises. Some of these exercises 
will be found at the close of the chapters of this Outline; others 
will be prepared from time to time and given to students on 
mimeographed sheets. Assignments may also be made from the 
questions found in the introductory pages of each chapter of 
Marshall's Readings in Industrial Society. 

Exercises marked "R" are intended primarily to furnish a 
"review" of the subject as previously presented, but in the 
student's own way. Those marked with an "A" present some 
situation calling for the "application" of economic principles. 
Those marked with a "D" are intended for brief "discussion" 
in class, as they involve questions that are a particular challenge 
to the thinking of students. 

A number of topics will be required of students during the 
second semester's work. The purpose of these topics, together 
with a list of suggested topics, is set forth on pages 137-142 of 
this Outline. 

Required and Collateral Reading-. — The required reading in 
the course consists of Ely's Outlines of Economics, and Mar- 
shall's Readings in Industrial Society, together with such other 
readings as may be assigned from time to time. The exact 
chapters and sections of each of these textbooks pertaining to 
any given subject will be found specified in the references given 
at the close of each of the chapters of this Outline. References 
are also made throughout to two other books of readings com- 
piled from a great variety of sources, namely, Marshall, Wright 
and Field's Materials for tlie Study of Elementary Economics, 
and Hamilton's Current Economic Problems. Some of the chap- 
ters of this Outline also carry references to a few other sources, 
but no attempt is made to list an extended bibliography. It is 
rather the idea to insert a few references which are to consti- 
tute the student's first introduction to the subject, and having 
mastered these in their proper place in the course, to expect him 
to shift for himself. 

A considerable number of general reference works will be 
found in the departmental library, room 301 of the Physics — 
Economics Building, and on the reserved shelves of the reading 
room of the University Library. In addition to the two re- 
quired textbooks students are encouraged to familiarize them- 
selves with the literature of the subject. 



PLAN OP THE COURSE 7 

Personal Conference. — Each of the instructors, including the 
lecturer, will arrange hours each week for personal conferences 
with students in his office. The hours will be announced in the 
sections and in the student directory. It will be an excellent 
plan for students to keep a card on which to note questions or 
topics arising in the reading, class discussions or lectures that 
they do not understand, and then to consult with their instruc- 
tors concerning them. 

Textbooks 

Ely's Outlines of Economics, revised edition (1916). 
Marshall's Readings in Industrial Society. 
Kiekhofer's Outline of the Elements of Economics, second re- 
vised edition (1918). 

Examinations 

There will be monthly examinations of one hour each in ad- 
dition to the final examination. Notice of the regular examina- 
tions will always be given one week in advance. 

Final Grade 

The final grade will be computed upon the basis of the 
examination grades and the class work, the class work grade in- 
cluding both the written and class discussion work. It has been 
the practice during the past two years in the computation of the 
final grade to weight each of the four monthly examinations, 
or their equivalent, one point, the final examination three points, 
and the class work three points. 

Purpose and Use of This Outline 

This topical outline of the elements of economics has been 
prepared for the purpose of furnishing unity to the course. 
The analysis here made will be developed in the lectures and 
class discussions, some topics being discussed only in the lectures, 
some only in the sections, and some in both. The organization 
of thought here suggested is tentative and will be varied when- 
ever it can be improved, considering both the logic of the 
thought and the needs of beginning students. 

Reading references are given to one textbook and to three 
books of readings. Throughout this Outline, Ely's Outlines of 



3 ELEMENTS OF ECONOMICS 

Economics is called reference (1) ; Marshall's Readings in In- 
dustrial Society, reference (2) ; Marshall, Wright and Field's 
Materials for tlie Study of Elementary Economics, reference 
(3); Hamilton's Current Econoynic Problems, reference (4). 
If, to illustrate, the student comes across this reference: (1) 
132-133, it means that on pages 132-133 of Ely's Outlines of 
Economics the subject under consideration is treated. 

In preparing his work the student is advised first to read the 
references given at the close of each chapter of this Outline 
through from beginning to end, and then to go over the assign- 
ment topically with the aid of this Outline. If this is done the 
student will come to class prepared intelligently to listen to 
the lecture and to participate in the class discussion. 



NATURE AND SCOPE OF ECONOMICS 



Part I — Modern Industrial Society 



CHAPTER I— THE NATURE AND SCOPE OF ECONOMICS 

I. The Nature of Economics 

Economics and political economy are terms used inter- 
changeably to designate one of the social sciences. Usage 
today favors the former term, as better designating the 
content of the science under consideration, for there are 
many aspects of economic study that are non-political. 

''Economics is the science which treats of those social 
phenomena that are due to the wealth-getting and wealth- 
using activities of man" (1) 4. 

1. Nature of social phenomena. 

2. Nature of wealth-getting. 

3. Nature of wealth-using. 

A somewhat more definitely inclusive definition is the fol- 
lowing: "Economics is the science (1) which treats of 
those social phenomena that are due to the wealth-getting 
and wealth-using activities of man; and which (2) deals 
with all other phases of his life in so far as they affect 
hi^ social activity in this respect. "—Ely and Wicker, Ele- 
mentary Principles of Economics, p. 3. 

II. Economics, A Social Science 

1. Meaning of the term "science." 

A science is a body of knowledge dealing with phe- 
nomena connected by such constant relations that these 
relations can be expressed in generalizations known as 
laws. Physical science is based upon the postulates 
of the indestructibility of matter, the conservation of 
energy, and the uniformity of nature. "Without these 
the physical sciences could not be exact; they would 
amount to nothing more than bodies of description. 



10 ELEMENTS OF ECONOMICS 

2. Meaning of the term "law". 

A scientific law is a statement of the cause and effect 
relationship between phenomena which always holds 
under given conditions. The laws of science do not 
grow, as does the common law ; they are not made, as 
is statute law; they are natural, and so are merely 
discovered by man, e. g. 

a. Newton's law of universal gravitation, 

b. Kepler's laws of motion. 

3. Distinctive nature of "economic laws" (1) 7-11. 
There is a certain uniformity of human nature, which 
makes social sciences possible, but there is no such 
invariability about it as there is about inanimate na- 
ture. Hence all social laws, including economic laws, 
cannot have the exactness of the laws of physical sci- 
ence. Economic laws describe tendencies. The state- 
ments of economic laws are often provisional. This 
does not prove that there are no economic laws, but 
only that they may not yet have been fully discovered. 

4. Economics, a social science. 

Economics is a social science because it deals with 
phenomena growing out of human relationships. Like 
all social sciences, it is an approximate and partially 
descriptive science. 

III. The Relation of Economics to Other Social Sciences 
(1) 11-15 . 

The social sciences all deal with men in their relations 
to each other. For every distinct relationship between 
men there is a distinct science. But there can never be 
any such sharp boundary line between the social sciences 
as between the physical sciences. 

The relation of economics is particularly close to 
1. Sociology. Sociology is the most general of all the 
social sciences. It has the same relation to the special 
social sciences, like economics and politics, that biology 
has to botany and zoology. It concerns itself with the 
origin and development, the structures and functions, 
of all forms of human association. 



NATURE AND SCOPE OF ECONOMICS H 

2. Polities, which treats of those social relations of man 
that concern him as a member of organized society, the 
state. 

3. Law, which comprises the regulations through which 
formal expression is given to the will of society. 
Usages and customs, which have come to be sanctioned 
precedents, constitute the common law. Rules and 
regulations enacted by legislative bodies constitute the 
statute law. 

4. Ethics, which treats of the rightness and wrongness 
of social relations. 

Mention should also be made of history, as a record of 
past events. Present economic phenomena cannot be un- 
derstood without a knowledge of those past conditions that 
produced them. 

The student of economics will often find in the study of a 
given economic problem, such as the "trust" question, a 
labor problem, or a plan of taxation, that there are eco- 
nomic, social, political, legal, and ethical considerations 
involved. 

Provision for one's wants being fundamental to every 
other relationship of life, economics occupies a very im- 
portant position in the family of the social sciences. 

IV. The Relation of Economics to Social Psychology 

1. The old psychology of the "economic man." Some 
writers on economics conceived of man, whose eco- 
nomic activities they sought to explain, as a being 
whose conduct was determined by enlightened self-in- 
terest, who endeavored to satisfy his wants with the 
least possible effort. This "economic man" was an 
abstraction. Man is a member of a social group, and 
his activities are influenced by many diverse motives 
(2) 277-279. 

2. The new social psychology. Social psychology is a 
study of the mental life of associated individuals. It 
must be studied for any complete analysis of all the 
motives influencing men in their economic activities, 
a. Its emphasis upon impulses, instinctive and habit- 

nal (2) 270-277. 



12 ELEMENTS OF ECONOMICS 

b. Its emphasis upon the interaction of individual 
and group, and the complex nature of most motives 
in social activity (1) 103-105. 

V. The Scope of Economics 

1. Economic structures and functions. 

2. Economic principles. 

3. Economic problems. 

4. Economic policies. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. I. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 103, 
104. 



SURVEY OP MODERN INDUSTRIAL LIFE 13 



CHAPTER II— SURVEY OF MODERN INDUSTRIAL LIFE 

I. The Meaning op Industrial Society and Industrial 

Life 
II. Motives in Economic or Industrial Activity (1) 103-105 

III. Basic Elements in American Industrial Life 
1. Population. 

a. Present population of the United States (1) 64. 

b. Rate of growth of American population (1) 64; 
(3) 108-109. 

c. Percentage of American population gainfully em- 
ployed. 

d. Distribution of American population between city 
and country (1) 66. 

e. Composition of the American population (1) 68- 
74; (3) 137-140. 

(1) As to nativity. 

(2) As to ethnic stock. 

f. Distinctive traits of the American people (1) 63- 
64. 

g. Influence of our population on the economic de- 
velopment of the United States. 

2. Natural resources (1) 7^76. 

a. Meaning of natural resources. 

b. Principal natural resources of the United States 

(3) 77-102. 

c. Influence of our natural resources on the economic 
development of the United States. 

3. Capital Goods. 

. a. Estimate of the national wealth of the United 
States (1) 112. 

b. Estimate of the value of the capital goods of the 
United States (2) 430-431. 

c. Importance of the large per capita use of capital 
goods and natural resources in explaining the 
prosperity of America. 



14 ELEMENTS OP ECONOMICS 

IV. Classification and Relative Importance of the Lead- 
ing American Industries (6) 20-33. 

1. Purpose of such a classification. 

2. The extractive industries. 

a. Agriculture (1) 84-85. 

b. ' ' Aquaculture. ' ' 

c. Mining. 

d. Forestation. 

3. Manufacturing (1) 86-90. 

4. Trade and Commerce. 

5. Transportation (1) 90-93. 

6. Banking and other credit institutions. 

7. Professional and personal services. 

Eeferences 

(1) Ely, R. T., Outlines of Ecoiiomics, Chs. V, VI. 

(2) Marshall, L. C, Headings in Industrial Society, Sees. 2, 
4-10, 151-152, 161. 

(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 22, 26, 33, 34. 

(5) Abstract of the Thirteenth Census of the United States. 

(6) Adams, H. C, Description of Industry. 

(7) Van Hise, C. R., Conservation of Natural Resources in the 
United States. 



FUNDAMENTAL FEATURES 15 



CHAPTER III— SOME FUNDAMENTAL FEATURES AND 

ASSUMPTIONS OF THE PRESENT ECONOMIC 

SYSTEM 

I. The Nature of Human Society 

II. Important Phases of Human Society and Their Inter- 
relationship 

1. Economic. 

2. Social. 

3. Political. 

4. Legal. 

III. The Meaning of Economic System 

IV. Some Fundamental Legal Institutions Affecting the 
Industrial Life of the Present Economic System 

1. Private property (1) 21-24. 

a. Nature (2) 950-957. 

b. Basis (2) 959-962. 

e. Services (2) 963-968. 

d. Criticism (2) 968-971. 

e. Future development (2) 980-983. 

2. Inheritance (1) 24-25. 

3. Contract (1) 25. 

4. Vested interests or rights (1) 25-26. 

5. Personal freedom (1) 26-28; (2) 897-900. 

a. Freedom of person. 

b. Freedom of movement. 

c. Freedom of occupation. 

d. Freedom of association. 

e. Freedom of consumption. 

f. Freedom of production. 

V. Some Fundamental Forces of the Present Economic 
System 
1. Competition (1) 28-30. 

a. Meaning (2) 890-893. 

b. Chief forms of economic competition (2) 894-897. 



16 ELEMENTS OP ECONOMICS 

2. Custom (1) 31. 

3. Monopoly (1) 30-31. 

4. Public authority. 

VI. Characteristic Attitudes Towards the Present Eco- 
nomic System 

1. The attitude of economic conservatives. 

2. The attitude of economic radicals. 

a. Philosophical anarchists. 

b. Communists. 

c. Single tax advocates. 

d. Socialists. 

e. Syndicalists. 

3. The attitude of economic liberals. 

References 

(1) Ely, R. T., Ouilines of Elements of Economics, Ch. II. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 336- 
339, 362-370, 374. 

(4) Hamilton, W. H., Current Economic Problems, Sees. 67- 
74, 320-331. 



EVOLUTION OF ECONOMIC SOCIETY 17 



CHAPTER IV— THE EVOLUTION OF ECONOMIC 
SOCIETY 

I. Importance of a Knowledge op Industrial Evolution 
FOR THE Interpretation of Contemporary Society 

II. Principles Underlying the Classification of the Eco- 
nomic Stages (1) 44-45; (2) 32-33, 175 

A. character of the process of exchange (hildebrand) 

1. Barter economy. 

2. Money economy. 

3. Credit economy. 

B. size of the economic unit (bucher) (2) 94-98. 

1. Independent household economy (2) 33-36. 

2. Town economy. 

3. National economy. 

4. World economy, 
c. condition of labor. 

1. Independent or communal labor. 

2. Slavery and serfdom. 

3. Wage labor regulated by individual contract. 

4. Wage labor regulated by collective bargaining. 

D. EXTENSION OF THE MARKET ( COMMONS) (5) 219-266 

1. Itinerant labor stage. 

2. Custom order stage. 

3. Eetail shop stage. 

4. Wholesale order stage. 

5. Merchant-capitalist stage. 

6. Merchant- jobber stage. 

7. Factory stage. 

E. man's control over NATURE (1) 33-34. 

1. Direct appropriation stage (1) 34-35. 

2. Pastoral stage (1) 36. 

3. Agricultural stage (1) 37. 

a. Manorial economy (1) 37-39; (2) 55-71. 

4. Handicraft stage (1) 39^3. 

a. The rise of towns (2) 71-74. 



18 ELEMENTS OF ECONOMICS 

b. The gild system. 

(1) The merchant gilds (2) 74-79. 

(2) The craft gilds (2) 79-94. 

c. The development of trade and commerce 
(2) 98-101. 

(1) Fairs and markets (2) 101-107. 

(2) Mediaeval shops (2) 107-108. 

(3) Development of foreign trade (2) 111- 
115. 

d. Social control of mediaeval industrial life 
(2) 126-141. 

e. The domestic system (2) 195-198. 
5. Industrial stage. 

III. The Rise op Modern Industrialism (2) 144-148 

1. The nature and scope of the industrial revolution. 

2. The causes of the industrial revolution (2) 217-221. 

3. The significance of the industrial revolution (2) 213- 
217, 221-223. 

References 

(1) Ely, R. T., Outlines of Economics, Chs. 3, 4. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 11, 
12, 17-47, 49-51, 57-60, 69, 75, 82-84. 

(4) Hamilton, W. H., Current Economic Problems, Sees. 3-15, 
20-27. 

(5) Commons, J. R., Labor and Administration, Ch. 14. 

Exercises 

ID. Organic evolution implies heredity. Is there a social her- 
edity comparable to the organic heredity? 

2D. Roscher asserted that the life of a nation, like that of an 
individual, has its youth, middle age, and old age. Is this 
true ? 

3D. It has been held that because economic progress has been 
continuous, it is incorrect to divide it into ''stages". Is 
this true? 

4D. According to Biicher what change has taken place in the 
relations of producer and consumer as a result of economic 
progress? Is this tendency universal and always desirable? 



EVOLUTION OF ECONOMIC SOCIETY 19 

5D. How would the development of an international economy 

affect world peace? 
6D. Were the cattle and sheep ranches of the western part of 

the United States fairly comparable to the pastoral stage 

in the economic evolution of society? 
7D. What is the difference between the craft guilds of the 

handicraft stage and modern labor organizations? 
8D. Contrast the control of industry in the guild period with 

the control of industry by government today. 
9D. Explain and criticise the violent opposition on the part of 

labor to the introduction of the new textile machinery. 
lOD. Illustrate how a knowledge of economic evolution throws 

light upon American politics, past and present. 



20 ELEMENTS OF ECONOMICS 



CHAPTER V— THE FUNDAMENTAL CONCEPTS OF 
ECONOMICS 

The following concepts are some of the most fundamental 
and frequently occurring concepts in economics. 

A Good is anything capable of satisfying a human want. 
Goods have utility. Utility is the power of the good, whether ma- 
terial or non-material, directly or indirectly to satisfy a human 
want. Goods have utility, yield services, afford gratifications. 

Goods may be classified as follows : 

I. As TO Nature 

1. Material Goods consist of tangible things possess- 
ing utility. Sometimes we refer to these external 
objects possessing utility as Commodities. 

2. Personal Services are those want-satisfying hu- 
man activities which require direct cooperation be- 
tween the persons concerned in the satisfaction of 
the want. 

3. Impersonal Services are those want-satisfying hu- 
man activities that do not require direct coopera- 
tion between the person rendering the service and 
the ultimate beneficiary of the service rendered. 

Most factory labor is of this kind. 

4. Personal Qualities. A good many economists do 
not classify personal qualities as goods. Personal 
qualities, they say, describe the psychic and phys- 
ical man ; what a man can do and what a man has, 
constitute the realm of goods. Upon this basis 
the surgeon's skill is not a good, although the 
personal service rendered by the surgeon is a" good. 
Other economists, notably Professor Alfred Mar- 
shall, include personal' qualities in the category of 
goods, describing them as personal, internal, non- 
transferable goods. 

5. Claim Goods are property rights or possession 
claims, or the evidences thereof, to other goods. 



FUNDAMENTAL CONCEPTS 21 

II. As TO Scarcity 

1. Free Goods are goods which at a given time and 
place, and without cost to anyone," exist in quan- 
tities sufficiently large to satisfy all wants for 
them. 

2. Economic Goods are goods which at a given time 
and place cannot be obtained without cost in 
quantities sufficiently large to satisfy all wants 
for them. 

III. As TO Use 

1. Consumption Goods are goods in the hands of the 
final consumer intended for use in the direct sat- 
isfaction of human wants. 

2. Production Goods are goods which can satisfy 
human wants only indirectly through the produc- 
tion of other economic goods. 

a. Capital Goods, as production goods, are those 
products of past industry which are used or 
held for the purpose of producing other eco- 
nomic goods. This is what is sometimes called 
Social Capital or Productive Capital. The 
term ' ' capital goods ' ' is sometimes abbreviated 
to "Capital." In ordinary business usage the 
term "capital" is used in a considerably 
broader sense, as will be seen in the chapter 
on business organization. 

b. Natural Resources, as production goods, are 
those gifts of nature which are used for the 
further production of economic goods. 

3. Acquisitive Goods are goods which merely yield 
their owner an income without resulting in the 
production of any further economic goods. Copy- 
rights, patent rights, notes, etc., are acquisitive 
goods. Acquisitive goods are usually referred to 
as Acquisitive Capital. 

IV. As TO Kind of "Wealth 

1. Social Wealth consists of all material goods on 
hand at a given time. This is what is meant by 
wealth from the social point of view. 



22 ELEMENTS OF ECONOMICS 

2. Private Wealth comprises all material goods, or 
rights and claims to material goods and services, 
owned by an individual, partnership, or corpora- 
tion. 

3. Public Wealth comprises all material goods, or 
rights and claims to material goods and services, 
owned by a governmental organization. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. VII. 
(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 10-14. 



CONSUMPTION 23 



Part II — Consumption 



CHAPTER VI— CONSUMPTION 

I. The Nature of Human Wants (1) 133; (3) 20-23 

1. Expansion. 

2. Satiability. 

3. Habituation. 

II. Consumption — The Satisfaction of Human Wants 

1. Final consumption means the use of goods in the di- 
rect satisfaction of human wants (1) 132-133. 

2. Harmful consumption means that use of goods in the 
direct satisfaction of human wants which lowers the 
efficiency of the consumer (1) 144. 

3. Destructive consumption is that form of consumption 
in which the satisfaction derived is insignificant when 
compared with other uses that could be obtained from 
the goods. Nero 's burning of Rome, whatever the util- 
ity it may have conferred, was destructive consump- 
tion. Some luxuries are consumed so wastefuUy that 
their consumption amounts to destructive consumption. 

4. Productive consumption — a pseudo-form of consump- 
tion (1) 132-133; (2) 45. 

5. Luxury (1) 143-144. 
a. Nature. 

To say that luxury is ''excessive personal con- 
sumption" (1) 143, is immediately to raise the 
question, when is consumption excessive? It is 
impossible to define luxury to the satisfaction of 
all, simply because there is no unanimity of opin- 
ion as to what constitutes the excessive or super- 
fluous in consumption. As long as there are dif- 



24 , ELEMENTS OF ECONOMICS 

ferent social classes, we may always expect differ- 
ent conceptions of luxury. It is the person and 
the time and not the specific character of the good 
that makes a good a luxury or a necessity. Lux- 
ury is a relative concept — relative to person and 
time. Things that were once luxuries to some 
may in time become necessities to them and even 
to all. The war, on the other hand, is showing 
how things once regarded as necessities have again 
been placed in the class of luxuries. 

b. Alleged justifications. 

(1) People may do with their money what they 
please. 

(2) As expenditures for luxuries put money into 
circulation and make work for people, they 
are socially desirable. 

c. Real justifications. 

III. The Laws of Consumption 

1. Laws based on the psychology of want satisfaction. 

a. The law of diminishing gratification. The grati- 
fication received from the consumption of a unit 
of a good decreases as we consume successive 
units of it (3) 23-25. 

b. The law of the estimation of the utility of future 
goods. ' ' The present estimation of the utility of a 
future good is less than the present estimation of 
the utility of a present good, assuming no change 
in either quantity or quality of the good" (3) 
25-26. 

c. The law of variety in consumption. The maximum 
gratification may be derived from consumption by 
observing variety in the goods consumed. This 
law is a corollary of the law of diminishing grati- 
fication (5) 74-75. 

d. The law of harmony in consumption. The pleas- 
ures of consumption may be enhanced by harmony 
in the goods consumed (5) 75. 



CONSUMPTION 25 

2. Law based on the statistics of expenditure — Engel's 
law applied to American conditions. 

a. As income increases, the percentage of it expended 
for (1) food, (2) fuel and light decreases. 

b. As income increases, the percentage of it expended 
for clothing and sundries increases. 

c. As income increases, the percentage of it expended 
for housing remains about constant. 

IV. The Economic Order of Consumption (1) 139-141 
1. Maintenance of the margin of consumption. 

V. The Eelation of Consumption to Saving (1) 142-143 

1. The desirability of securing a surplus. 

2. Aspects of saving. 

a. Saving as conservation. 

b. Saving as postponement of consumption. 

3. Conditions of saving. 

a. Development of foresight. 

b. Existence of a surplus. 

c. Existence of durable goods. 

d. Establishment of savings institutions and the 
multiplication of investment opportunities. 

e. Existence of a stable government. 

4. Need of war-time saving. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. IX, omitting pp. 
134-138. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 320- 
324. 

(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 6-7. 

(5) Seager, H. R., Principles of Economics, pp. 74-75. 

Exercises 

lA. Assume that an individual estimates his present wants as 
fairly represented on some scale of his own devising by 
the figures 100, 90, 85, 75, 45, 40, 20, and the present 
value of future wants on the same scale by the figures 80, 



26 ELEMENTS OF ECONOMICS 

70, 55, 50, 15, 10, 5. Suppose that he has $10.00 to spend 
as he pleases for present or future wants, and that each of 
the above ten wants can be satisfied with the expenditure 
of $1.00. How many dollars will he lay aside for future 
wants ? 
2A. A student has $5.00 to spend. He estimates hi& units of 
gratification by spending 

$4.00 for theatre tickets for next week at 48; 

3.00 for a drive next week at 25; 

1.00 for meals today at 15; 

5.00 for a hat today at 40; 

4.00 for thrift stamps today at 50. 
The estimates in all cases represent the equivalent of 
present gratifications. What disposition will he make of 
his money? 
3A. An American wage earner in a given year had a money 
income of $750. His yearly account showed that he spent 
$300 for food, $150 for rent, $75 for clothing, $90 for 
fuel and light, and $135 for sundries. Suppose that a 
few years later his income had increased by one-half. 
Upon the basis of Engel's law of expenditure as modified 
for American conditions, calculate his approximate ex- 
penditure for each of the five items, assuming that he 
spends his entire income. 



PRODUCTION 27 



Part III — Production 



CHAPTER VII— PRODUCTION 

I. The Nature of Production (1) 116-119; (3) 45-55 
Production consists in the creation of economic goods. 
Production may take various forms such as the 

1. Production of social wealth through the 
a. Creation of form utility. 

"■ b. Creation of place utility, 

c. Creation of time utility. 

"Things are not fully 'produced' until they are in 
the form in which they are wanted, at the place at 
which they are wanted, and at the time when they are 
wanted" (1) 116. 

2. Rendition of direct personal services. 

II. The Factors in Production 

1. Nature (1) 119-120; (3) 58-60. 

Nature, as a factor in production, includes all those 
gifts of nature which are used in the creation of eco- 
nomic goods. Frequently these natural resources are 
called "land" by economists. 

2. Labor (1) 120-121; (3) 105-108. 

Whatever human effort helps in the creation of eco- 
nomic goods is productive labor. Not all human ef- 
fort is productive labor, because not all of it is spent 
in the creation of economic goods. Much human ef- 
fort is exerted for the direct satisfaction of wants. 

Whoever helps in the creation of economic goods, 
whether in the form of social wealth or personal serv- 
ices, is a producer. 



28 ELEMENTS OF ECONOMICS 

3. Social capital (1) 121-123; (3) 157-160. 

Social capital or capital, as a factor in production, 
includes those products of past industry which are 
used in the further production of economic goods. 

a. Kinds of productive capital. 

(1) Fixed capital. 

(2) Circulating capital. 

b. Formation of capital. 

4. Entrepreneur (1) 123-124; (2) 266-267. 

The entrepreneur in production is a person who as- 
sumes the risk. He may assume the actual manage- 
ment of the business himself or delegate it to some one 
else. 

III. The Specialization of Labor (1) 12^130; (2) 373-374, 
377-380 

1. Separation of occupations. 

2. Territorial specialization of labor (2) 386-391; (3) 
189-197. 

a. Sectional. 

(1) Reasons for the localization of industry and 
labor. 

b. National. 

3. Technical ''division of labor" (2) 381-382; (3) 198- 
204. 

By the technical division of labor is meant the divi- 
sion of a productive process into many parts. 

a. Advantages (2) 394-396. 

(1) A gain of time. 

(2) Development of greater skill. 

(3) The more advantageous use of labor. 

(4) The more advantageous use of capital. 

(5) The stimulation of inventions. 

(6) Through the simplification of operations, the 
substitution of machinery for human labor. 

b. Disadvantages (2) 397-400. 



PRODUCTION 29 



References 

(1) Ely, R. T., Outlines of Economics, Ch. VIII. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 100, 
141, 143, 146, 148, 149. 

(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 15-17, 24-25, 41-43, 51, 53- 

58, 105-106, 110-112, 142, 144, 150. 

Exercises 

lA. Give one elear example of eaeh distinct type of produc- 
tion that you can think of, explaining the type. 

2 A. In order that any human activity may be regarded as 
labor in the economic sense is it necessary that it (a) be 
irksome? (b) be physical rather than mental? (c) result in 
any product? (d) result in a material product? (e) com- 
mand a price in the markets of the world? Show clearly 
what it is that makes human activity productive labor. 



30 ELEMENTS OF ECONOMICS 



CHAPTER VIII— BUSINESS ORGANIZATION 

I. The Nature of Business (1) 212 

II. Accounting Statements Revealing the Condition of a 
Business Unit (3) 814-817 

1. The statement of assets and liabilities — the balance 
sheet or financial statement (1) 213-214. 

2. The statement of income and expenditure, showing 
profit and loss — the operating statement, 

III. The Individual Entrepreneur as a Type of Business 
Unit (1) 214-215; (2) 358-359 

IV. The Partnership as a Type of Business Unit (1) 215- 
216; (2) 359-361; (3) 233-234 

1. Nature of partnership. 

2. Advantages to business-man. 

a. Eas€ of organization. 

b. Elasticity of contractual relations among the part- 
ners. 

3. Disadvantages to business-man. 

a. Unlimited personal liability. 

b. Instability. 

c. Unadaptability to the largest enterprises. 

V. The Corporation as a Type of Business Unit (2) 361- 
367 

1. Nature of corporation. A corporation is an associa- 
tion of individuals known as stockholders empowered 
by legal charter, through a board of directors and un- 
der a corporate name to act as one person in the con- 
duct of a specified business. The corporation is an ar- 
tificial person created by law for some specific purpose 
(1) 216-217. 

2. The provisions of the corporation charter (1) 217- 
219; (3) 234-236. 

3. The corporation management (1) 226-228. 



BUSINESS ORGANIZATION 31 

4. Advantages to business-man (1) 228. 

a. Limited liability. . 

b. Stability. 

c. Transferability of interests. 

d. Efficiency in management. 

e. Command over large amounts of capital. 

5. Classification of corporation securities (1) 220; 
(2) 341-346; (3) 241-251. 

a. Stocks — entrepreneurial interests. 

(1) Preferred. 

(a) Cumulative, (b) Non-cumulative. 

(2) Common. 

b. Bonds — creditor interests. 

6. Corporation capital and capitalization. 

a. The meaning of business capital. The business 
world uses the term ''capital" in a much broader 
sense than indicated in Chapters V and VII. The 
distinctions there drawn for logical and practical 
reasons between productive capital goods and 
natural resources, and between productive and ac- 
quisitive capital, are not usually made in the popu- 
lar usage of the business world. In business cir- 
cles "capital" means the actual value of the in- 
vestment in the business. The investment may 
include productive capital goods, natural re- 
sources, acquisitive capital, intangible as well as 
tangible things, in short, anything from which a 
monetary income can be drawn. (1) 219. 

b. Corporation capitalization in a legal sense. In a 
strictly legal sense capitalization means the par 
value of the authorized amount of capital stock 
of a corporation. This meaning is entirely dis- 
tinct from the popular and economic use of the 
term (1) 219. 

c. Corporation capitalization in an economic sense. 
In the economic sense capitalization means the 
total par value of all the securities, stocks and 
bonds, of a corporation outstanding at any given 
time. Since the nominal value of the outstanding 
stocks and bonds is often very different from the 



32 ELEMENTS OP ECONOMICS 

real value of the investment, capitalization and 
capital are not identical. There may be over- 
capitalization and conceivably under-capitaliza- 
tion. 

d. Possible bases of capitalization in the economic 
sense (3) 252-256. 

(1) Original investment. 

(2) Cost of reproduction minus depreciation — 
the value of the physical plant, measured by 
all the concrete material assets of the busi- 
ness. 

(3) Earning capacity. 

e. Overcapitalization (1) 221-225. 

f. Objections to overcapitalization. 

7. Social dangers in corporations (1) 228-229. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XIII, pp. 212-230. 

(2) Marshall, L. C, Headings in Industrial Society, Sees. 126- 
127; 136-138. 

'^3) Marshall, Wright and Field, Maierials for the Study of 
Elementary Economics, Sees. 64, 65, 69-72, 232. 

(4) Hamilton, W. H., Current Economic Prohlems, Sees. 90, 
92-95. 

Exercises 

lA. Adams, Brown and Cole establish the "A. B. C. Leather 
Goods Company", a partnership Avith capital of $150,000 
to which each of the partners contributes $50,000. Adams 
has assets in excess of $300,000; Brown and Cole have 
$5,000 each in addition to the money invested in this 
I)artnership. 

a. How would the death of Adams affect the perpetuity 
of the partnership ? 

b. Suppose the business to be forced into bankruptcy 
with liabilities exceeding assets by $50,000. To what 
extent is each of the partners liable for the debts of 
the company and how would the present indebtedness 
be settled? 



BUSINESS ORGANIZATION 33 

c. Would the liability arising out of the bankruptcy be 
different if the firm were a corporation instead of a 
partnership? By Avhoin would the $50,000 loss be 
borne ? 
2A. An industrial corporation has issued $10,000,000 of 7 per 
cent cumulative preferred stock, $10,000,000 of common 
stock and $5,000,000 of 5 per cent bonds. For the year 
1914 its net earnnigs were $600,000; for 1915, due to 
heavy war business, $1,800,000. Show how these net earn- 
ings were distributed among the holders of the different 
securities in both 191-1 and 1915 upon the assumption 
that the directors decided to take the entire amount of the 
net earnings out of the business. 
3 A. A corporation has issued h% bonds to the amount of 
$100,000; 6% cumulative preferred stock amounting to 
$50,000; and $50,000 in common stock. Its earnings in 
1916 were $6,000; in 1917, $20,000. In each year all 
earnings are distributed. Show the amount paid each 
year on each $100 share of stock and each $100 bond. 
In 1918 this corporation goes into bankruptcy. After 
paying all obligations aside from those due stockholders 
and bondholders, there remain assets amounting to 
$50,000. How would these assets be distributed? 
4A. Construct a balance sheet using the following data : 

Income reinvested (Surplus) $70,000 

Raw material 40,000 

Cash on hand 15,000 

Accounts receivable 10,000 

Common Stock 50,000 

Preferred Stock 50,000 

Funded debt (bonds) 100,000 

Land and buildings 200,000 

Undivided Profits 55,000 

Accounts Payable 10,000 

Machinery 50,000 

Finished goods on hand 20,000 

5A. a) Assuming that the government has no need for your 
money, suppose that you have five thousand dol- 
lars to invest. Indicate what considerations you 



34 ELEMENTS OF ECONOMICS 

would keep in mind in deciding whetlier to invest in 
the bonds, preferred stock, or common stock of any of 
the "industrials" listed on the New York Stock Ex- 
change. 

b) Would your action be any different if you were act- 
ing as trustee for a minor? 

c) Would you in making your investment consider either 
Anglo-French bonds paying 5% interest and selling 
at 94, or Russian Government bonds which can be 
purchased at a great discount? 

GA. Select at least one industrial and one railway stock, pre- 
ferably of corporations with which you are somewhat ac- 
quainted. 

a) Note for a period of two weeks in the financial col- 
umns of the daily press or of financial journals, the 
daily highest and lowest prices at which these stocks 
are bought and sold. Prepare a table showing your 
data, and graphs showing the fluctuations of your 
selected stocks. 

b) How do your high and low prices compare with the 
highest and lowest prices of these stocks for 1918? 
1917? 1916? 

7R. Using the outline suggested above in V. 6 as a basis, write 
a resume of your understanding of the subject ''Corpora- 
tion Capital and Capitalization". 



INDUSTRIAL COMBINATION 35 



CHAPTER IX— THE MOVEMENT TOWARD INDUS- 
TRIAL COMBINATION 

I. The Movement Toward Industrial Combination 
(2) 655-662 

II. Factors Promoting Combination in the U. S. 

(2) 748-751 

1. Tariff favoritism. 

2. Railway favoritism. 

3. Practice of local underselling. 

4. Patent privileges. 

5. Manufacturers' rebates. 

III. The Purpose of Combination (1) 232-235 

1. Industrial and commercial advantages of large scale 
production (2) 646-649; 760-761. 

2. Elimination of competition. 

3. Regulation' of output. 

4. Maintenance of prices. 

5. Profits of promoters. 

IV. Natural Field for Combination 

1. Natural monopolies. 

2. Businesses handling standardized articles. 

3. Businesses handling widely used commodities. 

4. Businesses protected by patents. 

5. Businesses requiring a large amount of capital. 

V. Forms of Combination (1) 230-232 

1. Informal or formal associations (2) 738-741. 

2. Pools (2) 732-737. 

Pools were agreements by which railroad companies 
or manufacturers divided the earnings in accordance 
with some stipulated ratio. 

3. Trusts (2) 732. 

A trust was originally a combination of corpora- 
tions, the stock of the constituent corporations being 
assigned to a board of trustees for management. 
Each of the constituent corporations maintained its 
independent legal entity. The trust was not a cor- 
poration but rather a combination of corporations. 



36 ELEMENTS OP ECONOMICS 

4. Holding Company (2) 726-727; (3) 239-241. 

The holding company is a corporation which owns a 
controlling share of the stock of the corporations in 
the combination. The term "trust" in popular us- 
age includes holding companies and mergers. The 
constituent corporations are subsidiary instead of 
nominally independent. 

5. Mergers. The merger is a corporation that buys up 
the stock of the constituent corporations, cancels it, 
and issues instead its own stock. In the merger 
there are neither nominally independent corpora- 
tions as in the trust, nor subsidiary corporations as 
in the holding company. 

VI. Common and Statute Law Status of Combinations 
IN Restraint of Trade (4) 430-433; 434-435 

VII. Federal Anti-Trust Legislation (1) 235-243 

1. Sherman Anti-Trust Act of 1890. 

a. Provisions (2) 777-778; (3) 334-335; (4) 433- 
434; 437-441. 

b. Important prosecutions under the Act (4) 435- 
437. 

2. Federal Trade Commission Act of 1914 (2) 778- 
779; (3) 336-337. 

a. Organization of the Commission. 

b. Functions of the Commission. 

(1) Functions of investigation and recom- 
mendation. 

(2) Functions of a quasi-judicial character, 
including particularly the function of pro- 
hibiting unfair methods of competition 
(2) 743-748. 

3. Clayton Anti-Trust Act of 1914 (2) 779-781; 
(3) 337-339; (4) 441-443. 

In general the Clayton Anti-Trust Act may be said 

to have tw^o great purposes : 

a. To check certain undesirable practices found 
among industrial combinations, railways, and 
banking institutions, whose effect is substan- 
tially to lessen competition. 



INDUSTRIAL COMBINATION 37 

b. To improve the status of^ labor organizations in 
"lawfully and carefully carrying out the legiti- 
mate objects thereof". 

VIII. Public Policy Toward Industrial Combinations 

(1) 243-246; (2) 771-773; (3) 329-333; (4) 448-448 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XIII, pp. 230-246. 

(2) Marshall, L. C, Readings inJndnstrial Society, Sees. 253, 
255-256, 281-282, 284-290, 292-293, 295-297, 299, 304, 
306-308. 

(3) Marshall, Wright and Field, Materials for tlie Studij of' 
Elementary Economics, Sees. 91, 92, 93. 

C4) " Hamilton, W. H., Current Economic Problems, Sees. 213- 
221. 

Exercises 

IR. Discuss the common law and federal statute law status of 
combinations in restraint of trade. 

2R. Outline the main provisions of the Clayton Anti-Trust 
Act of 1914. 

3R. Outline the chief functions of the Federal Trade Com- 
mission. 



38 ELEMENTS OF ECONOMICS 



Part IV — Valuation 



CHAPTER X— VALUE AND PRICE 

I. The Basis of Exchange (1) 19-21; 151 

Exchange, trade, and commerce are the result of spe- 
cialization in production, and also make possible the ex- 
tensive cooperation of the existing economic system. The 
process of exchange gives rise to the problem of ex- 
change value and price. 

II. The Nature of Exchange Value and Price (1) 151- 
153 

Value is a term that is used in many different senses. 
We speak about the ethical, religious, aesthetic, polit- 
ical, social, and economic values of life. Whatever the 
sense, however, it always implies choice on the part of 
man. Some things are chosen, others are rejected, be- 
cause they have a greater or lesser importance for man. 
It is this importance which things have when they be- 
come man's choices that gives them value. Things that 
already exist in abundance will not be chosen. Hence 
free goods have no exchange value. Of course, the 
choices are not always conscious — instinct, habits of ex- 
perience, training, imitation, rational judgment may all 
motivate the choice. 

The economic value that must be analyzed is exchange 
or ynarket value. A classical definition of this is that 
"Value is power in exchange." To put it somewhat 
more fully, by the exchange value of a good we mean 
the quantity of other goods that can be obtained in ex- 
change for it. Sometimes it has been said that the ex- 
change value of a good, is its ratio of exchange with 
other goods. Both the quantity and the ratio cttncep- 



VALUE AND PRICE 39 

tions of value emphasize the relativity of value. The 
fact seems to be that just as electricity is only measur- 
able when it works, so the value of a good, which is a 
quantity, is only measurable when that good works in 
some ratio of exchange. 

Price is exchange value expressed in terms of money. 

III, Factors in the Determination of Exchange Value 
AND Price (1) 153--155 

1. Custom, 

2. Public authority (1) 183-184. 

3. Monopoly. 

4. Free competition of market, 

"Market" here means the general field within which 
the forces determining the price of a particular com- 
modity operate (1) 154. 

IV, Free Interaction of Demand and Supply, the Es- 
sence OP Competition as a Price-Determining Factor 
(1) 156 

V, Analysis op Demand as a Price-Determining Factor 

1. Meaning of demand (1).156. 

Demand means the amount of a good that buyers are 
ready to purchase in a given market at a given price, 

2. The determinants of demand (1) 156-159. 

a. Desire. Goods are desired because they have 
utility, 

b. Purchasing ability. 

c. Inclination to buy. • 

3. Utility as a determinant of demand. Taking pur- 
chasing ability and inclination to buy for granted, 
our task is to analyze utility as a force determining 
demand which thus helps to establish exchange value. 
In making this analysis we shall have to consider in 
turn the law of diminishing utility, the concept of 
marginal utility, the comparison of margina^ utili- 
ties in arriving at subjective values, and the inter- 
action of subjective values in the formation of ex- 
change values. 



40 ELEMENTS OF ECONOMICS 

4: The law of diminishing utility. The intensity of our 
desire for additional units of a good decreases as we 
acquire successive units of it (1) 133-135. 

5. The importance of marginal utility as a determinant 
of demand (1) 135-137. 

By the marginal utility of a good we mean the util- 
ity of any one of the homogeneous units of a good. 
Marginal utility does not mean the utility of any 
particular unit, but the utility dependent on the 
possession of any one unit of a given stock. 

Whether marginal utility is defined as the utility of 
the last unit of a stock of goods on hand or an addi- 
tional unit to be acquired varies with the view point 
of prospective seller or purchaser. To the prospec- 
tive seller, the marginal utility of a good is the util- 
ity he would sacrifice through parting with one unit 
of the good. To the prospective purchaser, the mar- 
ginal utility of a good is the degree of importance he 
attaches to the possession of an additional unit of 
the good. If the units under consideration are 
small, the difference between the "final" unit and an 
"additional" unit becomes negligible. 

Demand is of course a reflection of utility ; mar- 
ginal utility emphasizes the variable part of the 
demand, taking the existence of a large unvarying 
demand for granted. In the actual determination 
of price it is the marginal utility of a good to pro- 
spective purchasers and sellers that counts, for prices 
are adjusted at though not hy the margin. 

6. The relation of marginal utility to subjective value 
(1) 137-139. 

Subjective value is something psychic. It always 
implies the choosing of some things rather than 
others, the comparison of their utilities. 

"The subjective value of a good to any person is 
that person's estimate of the importance of possess- 
ing that good as compared with the importance of 
possessing other goods" (1) 138. 

The subjective value of a good involves the com- 
parison of its marginal utility with the marginal 



VALUE AND PRICE 41 

utility of other goods — it is relative marginal utility. 
Concretely, subjective value is measured by the 
largest amount of other goods which a person will 
give for a good, or the smallest amount of other 
goods which he will accept for it. 

7. The relation of subjective value to exchange value 
(1) 155-156. 

Subjective value is the basis of exchange value. 
Exchange value is the resultant of the subjective 
values of possible purchasers and sellers. 

8. The elasticity of demand (1) 159-161. 
Variations in the elasticity of demand in the case of 

a. Necessities. 

b. Luxuries. 

c. Habitual consumption goods. 

d. Non-habitual consumption goods. 

e. Goods for which there are adequate substitutes. 

f. Persons with large incomes. 

g. Persons with small incomes. 

9. Nature and origin of consumers' surplus (1) 161- 
162. 

VI. Analysis of Supply as a Price-Determining Factor 

1. Meaning of supply (1) 162-164. 

a. Market supply means the amount of a good that 
sellers are ready to sell in a given market at a 
given price. 

b. Potential supply. 

The amount of a commodity which at any given 
time is available for a given market constitutes 
the potential supply. 

2. Determinants of market supply at a given time. 

a. Subjective value of good to prospective seller, 
i. e., marginal utility of good in comparison with 
the marginal utility of money offered for the 
good. 

VII. The Process of the Determination of Price 
1. Four possible cases. 

a. The case of one buyer and one seller in either a 
barter or money transaction (1) 187. 



42 



ELEMENTS OF ECONOMICS 



b. The case of several buyers and one seller as illus- 
trated by the auction. 

(1) A single good (1) 182. 

(2) Several identical goods (1) 182, 

c. The case of one buyer and several sellers. 

d. The case of several buyers and several sellers 
(1) 164-165. 

(1) The market, illustrated by produce mar- 
kets, boards of trade, stock exchanges. 

(2) The retail store. 

Typical case illustrating several buyers, several sell- 
ers. 



Prospective Buyers 



A will buy 1 unit at 30 
B will buy 1 unit at 26 
C will buy 1 unit at 22 
D will buy 1 unit at 18 



2 at 21 
2 at 20 
2 at 17 
2 at 14 



3 at 16. 
3 at 15. 
3 at 8. 
3 at 9. 



Prospective Sellers 



M will sell 1 unit at 12 
N will sell 1 unit at 9 
will sell 1 unit at 8 
P will sell 1 unit at 10 



2 at 17 
2 at 15 
2 at 14 
2 at 11 



3 at 20. 
3 at 18. 
3 at 16. 
3 at 14. 



a. Construction of demand schedule. Each buyer 
comes to the market with a more or less definite 
schedule of subjective values. The demand sched- 
ule of a given market is a composite of the sub- 
jective values of all prospective buyers. 

b. Construction of supply schedule. Each seller 
comes to the market with a more or less definite 
schedule of subjective values. The supply sched- 
ule of a given market is a composite of the sub- 
jective values of all prospective sellers. 

c. Graphic determination of price. 

There can be only one price in a given market at 
the same time. The market price will be the price 
at which the largest number of exchanges can be 
effected, where demand and supply are in equili- 



VALUE AND PRICE 43 

brium. Usually in such a market certain buyers 
and certain sellers will be excluded by their own 
subjective values, and only the most urgent buy- 
ers and sellers will actually exchange goods. 

d. The relation of market price to imputed price 
(1) 184-185. . 

VIII. Analysis of Long-Time Demand and Supply 

So far the price determination has been made upon 
the basis of the interaction of the demand and supply 
existing in a given market at a given time. But there 
are certain slowly acting movements that affect the long 
time demand and supply, which must be studied if thr 
problem of price determination is to be fully understood. 

1. Long-time determinants of demand (1) 167. 

2. . Long-time determinants of supply. 

a. Physical limitation of supply. 

b. Monopolistic limitation of supply. , 

e. Expense of production (1) 170-174. 
(1) Three possible cases. 

(a) Industries characterized by increas- 
ing expense per unit of product. 

(b) Industries characterized by decreas- 
ing expense per unit of product. 

(c) Industries characterized by constant 
expense per unit of product. 

(2) Fixed and variable expenses (1) 174-179. 

3. Interaction of long-time demand and long-time sup- 
ply in the establishment of normal value and price 
(1) 167-170. 

''Because the market price of a commodity cannot 
get very far away from the expense of producing it 
without resulting in abnormally high or abnormally 
low profits, and because the existence of abnormally 
high or abnormally low profits sets forces at work 
which are sure to move the price closer to the expense 
of production, the name normal price is given to 
that price wJiicJi is just equal to the expense of pro- 
ducing a unit of a commodity. 



44 ELEMENTS OF ECONOMICS 

"The effectiveness of the tendency of actual com- 
petitive prices to equal normal prices depends very 
largely upon the length of the period of time that 
is taken into consideration. The longer the period 
of time, the larger will be the proportion of man- 
agerial ability, labor, and capital that can be shifted 
from the less profitable to the more profitable under- 
takings" (1) 169. 

IX. Summary of the Theory of Value and its Criticisms 
(1) 186-187 

Eeferences 

(1) Ely, R. T., Ouilines of Economics, Chs. IX, pp. 133-139; 
X and XI. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 93-96, 

171. 

(3) Marshall, Wright and Field, Matericds for the Study of 
Elementary Economics, Sees. 102, 104-105, 107-108, 114, 
116-117, 121, 124. 

Exercises 
lA. In a given market the demand for and supply of strawber- 
ries is as indicated in the following schedules : 

Price per box Demand in boxes Supply in boxes 

$.04 2600 100 

.06 2100 600 

.08 1800 1100 

.10 1450 1400 

.12 1250 1600 

.14 1100 1800 

.16 950 2000 

.18 800 2150 

.20 700 2300 

.22 600 2400 

a. Plot the demand and supply curves and determine the 
market price. 

b. Suppose the demand to be twice as great at each of the 
above prices, the supply remaining as indicated. Con- 
struct the new demand schedule, plot the demand and 
supply curves, and determine the market price. 



VALUE AND PRICE 45 

c. Suppose the supply to be oiie-half as great at each of 
the above prices, the demand remaining as indicated. 
Construct the new supply schedule, plot the demand 
and supply curves, and determine the market price. 

d. Suppose both the demand and supply to be twice as 
great at each of the above prices as indicated. Con- 
struct the new schedules, plot the demand and supply 
curves, and determine the market price. 

2A. In a given market there are the following demand and sup- 
ply for a given commodity: 

A will buy 1 unit at $.50 ; 2 units at $.45; 3 units at $.30. 
B will buy 1 unit at .45 ; 2 units at .40 ; 3 units at .30. 
C will buy 1 unit at .35 ; 2 units at .33 ; 3 units at .31. 
D will buy 1 unit at .44 ; 2 units at .40 ; 3 units at .34. 

M will sell 1 unit at $.32 ; 2 units at $.39 ; 3 units at $.45. 
N will sell 1 unit at .35 ; 2 units at .40 ; 3 units at .48. 
will sell! unit at .30 ; 2 units at .37 ; 3 units at .43. 
P will sell 1 unit at .35 ; 2 units at .45 ; 3 units at .50. 

a. Construct the demand and supply schedules, plot the 
demand and supply curves, and determine the market 
price. 

b. Remembering the market price established in "a," 
name the buyers and sellers and indicate the number of 

■ units each one buys or sells. Why do the remaining 
units not exchange hands ? 

c. Using the above data show clearly what is meant by the 
subjective value of the commodity to A and to M. 

3A. An enthusiastic cement factory promoter made the follow- 
ing statement : 

"We can easily prove to any fair-minded person that 
our proposition is a veritable gold mine. Cement can be 
put on the market by a well-equipped mill at a cost of 
$1.75 a barrel, while it is selling for $4.00, thus giving a 
profit of more than 100 per cent. With the supply of raw 
materials practically unlimited, our mill will soon be turn- 
ing out 600,000 bbls. per year, and our annual profits will 
be nearly $1,500,000." Supposing the facts to be as stated, 
what was overlooked in drawing conclusions? 



46 ELEMENTS OF ECONOMICS 



CHAPTER XI— MONOPOLY AND MONOPOLY PRICE 

I. The Nature of Monopoly (1) 189-193 

1. Contrast between competition and monopoly as factors 
in the determination of price. 

2. Definition of monopoly. 

"Monopoly means that substantial unity of action on 
the part of one or more persons engaged in some kind 
.of business which gives exclusive control, more parti- 
cularly, although not solely, with respect to price" 
(1) 190. The unity of action may lie in production, 
selling, or buying. 

II. Classification of Monopolies (1) 193-200 

A. As to degree. 

1. Partial. 2. Complete. 

B. As to beneficiary. 

1. Public. 2. Private, 
c. As to area. 

1. Local. 2. National. 3. International. 
D. As to source of monopoly power. 

1. Social monopolies. 

a. General welfare monopolies. 

(1) Patents. 

(2) Copyrights. 

(3) Public consumption monopolies. 

(4) Fiscal monopolies. 

b. Special privilege monopolies. 

(1) Those based on public favoritism. 

(2) Those based on private favoritism. 

2. Natural monopolies. 

a. Those arising from limitation of supply of raw 
material. 

b. Those arising from secrecy. 

e. Those arising from peculiar properties inherent 
in the business. 



MONOPOLY AND MONOPOLY PRICE 47 

III. Incentive to Monopoly 

The gain to be derived from the stifling of competition 
has been the actuating motive in the establishment of 
monopoly. In certain businesses and industries the move- 
ment toward monopoly has been inevitable, e. g., indus- 
tries whose supply of raw material is limited, transporta- 
tion, public utilities, etc. 

IV. The Determination of Monopoly Price (1) 200-204 

1. The monopolist's control of the supply. 

The monopolist controls the supply but not the de- 
mand. He endeavors so to adjust his output to the 
existing demand that he will secure the highest net re- 
turns. 

2. Elements in the demand which influence monopoly 

price. The elasticity of the demand limits the monop- 
olist in his determination of price. The monopoly 
price of goods the demand for which is relatively elas- 
tic must be low; the monopoly price of goods the de- 
mand for which is relatively inelastic may be high. 

3. Effect of taxes upon monoply price. 

a. A fixed tax on the industry. 

b. A tax varying with the output. 

V. The Establishment op Class Price (1) 204-205 

1. Competitive class price. 

2. Monopolistic class price. 

a. Use price. 

VI. Public Policies Toward Monopoly (1; 208-210 

1. The policy of dissolution. 

2. The policy of regulation. 

3. The policy of government ownership. 

Reference 
(1) Ely, R. T., Outlines of Economics, Ch. XII. 



48 



ELEMENTS OF ECONOMICS 



Exercise 

lA, In a certain market for a given commodity there could be 
sold 

100,000 units at 50c per unit, costing 12c per unit 



130,000 


C i 


" 40c 


I i 




' lie ' 


i e < 


200,000 




" 30c 






10c ' 


i i i 


400,000 


' ' 


" 25c 


( i 




8c ' 


( i i 


600,000 




" 20c 


i i 




' 7c ' 


i C i 


1,000,000 




" 15c 


i i 




6c ' 


i i i 


2,500,000 


' ' 


" 10c 


i i 




5c ' 


i 1 1 


3,000,000 


'> 


•' 9c 


i i 




' 434c' 


i i : 


3,500,000 


" 


" 8c 


i i 




' 41/2C ' 


i i i 


4,000,000 




" 7c 


I i 




' 4iic' 


i c c 


6,000,000 




" 6c 


i i 




4c ' 


I ( I 


a. Determine 


the 


monopoly 


price. 


b. Determine 


the 


monopc 


>iy 


price if a tax of $40,000 is 



c. 



d. 



upon the industry as a whole. 

Determine the monopoly price if a tax of 1% is levied on 

the net profits. 

Determine the monopoly price if a tax of Ic is levied on 

each unit sold. 



MONEY EXCHANGE 49 



Part V — Exchange 



CHAPTER XII— MONEY EXCHANGE 

I. The Early History OF Money (1) 248-249; (2) 313-314; 
(3) 445-450 

II. Establishment of Metallic Money (1) 248-249; 
(2) 320-323 
1. Sources of superiority of precious metals. 

a. Relative stability of value. 

b. High value for small bulk — portability. 

c. Durability. 

d. Malleability. 

e. Divisibilit3^ 

f. Cognizability. 

III. Meaning of Money (1) 250-251; (3) 443-444 

Money is any standardized instrument of general accept- 
ability passing freely from hand to hand, without endorse- 
ment, as a medium of exchange. 

IV. Money in Circulation in the United States (2) 323-324 

1. Kinds of money in United States (1) 254. 

a. Coins. 

(1) Gold. (2) Silver. (3) Nickel. (4) Copper. 

b. Paper. 

(1) Gold certificates. (2) Silver certificates. 
(3) U. S. notes or "greenbacks." (4) Treasury 
notes of 1890. (5) National bank notes. (6) Fed- 
eral reserve bank notes. (7) Federal reserve 
notes. 

2. Redemption of United States money (1) 253-255; 
(3) 455. Gold constitutes the monetary standard of the 
United States. Wliile legally not all kinds of money 



50 ELEMENTS OF ECONOMICS 

are redeemable in gold, actually all other kinds of 
money are directly or indirectly exchangeable for gold 
coin. What maintains the parity of all other kinds of 
money with gold is the fact that, directly or indirectly, 
all other kinds of money are exchangeable for gold. 
3. Legal tender qualities of United States money (3) 456. 
Legal tender money is money which the law compels 
the creditor to receive at par in the settlement of debts. 
Gold and silver certificates, national bank notes, fed- 
eral reserve notes, and federal reserve bank notes are 
not legal tender. 

V. Forms of Money 

1. Standard money, which has been declared by law to be 
standard. Usually some commodity which has as much 
value for non-monetary as for monetary uses consti- 
tutes the standard money. Gold constitutes our stand- 
ard money. Standard money must have unlimited 
coinage and full legal tender value. 

2. Fiduciary money, whose value depends in whole or in 
part upon the fact that it can be exchanged for other 
money, usually standard money. Minor coins and 
paper money are examples of fiduciary money. 

VI. Uses of Gold Money (1) 252-255; (2) 315^316 

1. Standard of value. As a standard of value gold is the 
commodity by which the value of other goods is meas- 
ured, and in which it is expressed. 

2. Medium of exchange. 

3. Standard of deferred payments. 

4. Storehouse of value. 

5. Reserve supporting bank note circulation. 

VII. The Coinage of Money 

1. Nature of coinage (1) 249-250. 

Coinage is the manufacture of metallic money units of 
certified weight and fineness. 

2, Amount of coinage (1) 259-260. 

a. Free (unlimited). 

b. Limited. 



MONEY EXCHANGE 51 

3. Charges for coinage (1) 255-259. 

a. Gratuitous. 

b. Brassage. 

e. Seigniorage. 

VIII. The Problem of Bimetallism 

1. Nature of bimetallism (1) 260. 

2. Alleged advantages of bimetallism (1) 260-261. 

3. Disadvantages of bimetallism (1) 261-263. 
Bimetallism encounters a formidable obstacle in the 
principle known as Gresham's law, i. e., that ''the 
cheaper money drives out the dearer," it being as- 
sumed that both kinds of money are legal tender and 
in customary use. 

4. The bimetallic experience of the United States 
(1) 263-269; (3) 451-452. 

IX. The Problem op Paper Money 

1. Nature of paper money (1) 271. 

2. Dangers in the use of inconvertible paper money, and 
of paper money based upon only a partial reserve. 

a. The colonial experience with the continental cur- 
rency (1) 272; (3) 485-491. 

b. The southern experience with confederate money 
(3) 493-496. 

c. The experience of the United States with ''green- 
backs" (1) 273-278. 

3. The possibility of fiat money (1) 278-279. 

Fiat money is money which circulates solely because 
of the decree of the government, usually set forth in a 
law declaring the money full legal tender. Histori- 
cally our nearest approach to fiat money has been ir- 
redeemable money — intentionally irredeemable money. 
When people come to believe that fiduciary money will 
never be redeemed, it becomes practically fiat money. 

X. The Role of Money in Economic Life (2) 316-319 



52 ELEMENTS OF ECONOMICS 



References 

{1) Ely, R. T., Outlines of Eco7iomics, Ch. XIV. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 88-89, 
113-119. 

(3) Marshall, Wright and Field, Materials for Study of Ele- 
mentary Economics, Sees. 125-127, 129-132, 142-145. 

Exercises 

lA. Construct a tabular form in which you give a column each 
to the following headings: Is it money? If money, by 
whom issued ? To what amount is it legal tender for pri- 
vate debts? Is it a customary medium of exchange? Add 
a column at the extreme left of your form in which you list 
the following: Gold coins, gold bullion, silver dollar, pos- 
tal money order, subsidiary silver, five cent pieces, check, 
gold certificate, silver certificate, bank draft, United States 
note. Treasury note of 1890, United States bond. National 
bank note. Federal Reserve note, postage stamp. Answer 
the four questions for each of the above in the spaces re- 
served for them in your form. 

2 A. Suppose that under a bimetallic system the legal or mint 
ratio between silver and gold is fixed at 16 to 1, and that 
some time thereafter the market ratio becomes 19 to 1, which 
metal would be taken to the mint to be coined and which 
would be used in the payment of debts? State the law 
involved. 

3A. Construct a tabular form in which you give a column to 
each of the following headings : What is its nature ? By 
whom issued? What security supports it? To what 
amount legal tender? Add a column at the extreme left 
of your form in which you list the several kinds of paper 
money in circulation in the United States: Gold certifi- 
cates, silver certificates, United States notes, Treasury 
notes of 1890, National bank notes. Federal reserve notes, 
Federal reserve bank notes. Answer the four questions 
for each of the above in the spaces reserved for them in 
your form. 



CREDIT AND BANKING 53 



CHAPTER XIII— CREDIT AND BANKING 

I. The Nature and Functions of Credit ( 1 ) 282 ; 

(2) 324-327 

II. The Nature op Credit Instruments (2) 334-340; 

(3) 499-500 

1. Open accounts — book credit. 

2. Promises to pay, including such instruments as 
promissory notes, certificates of deposit, bank notes, 
government notes, bonds. 

3. Orders to pay. 

a. Checks. 

b. Commercial bills of exchange. 

c. Bankers ' bills of exchange or drafts. 

III. The Bases of Personal Credit (1) 285-286; (2) 327-328 

IV. The Conversion of Personal Credit into Bank Credit 

1. Its necessity (1) 286-287. 

2. The process of discounting (1) 287. 

V. Main Functions op Banks (2) 346-349 

''The one essential function of a bank is selling (lend- 
ing) its credit to its customers in some form which will 
conveniently serve the same function as money"- — Fetter. 

1. Receiving deposits. 

a. Time deposits. 

b. Demand deposits. 

(1) Conducting checking accounts. 

2. Making loans and discounts (1) 287. 

3. Negotiation of domestic and foreign exchange. 

4. Issuance of notes (1) 290. 

VI. Analysis op a Typical Bank Statement (1) 288; 
(3) 518-521 
- 1. The solvency of banks (1) 287. 

2. The necessity of maintaining adequate cash reserves 
(1) 288-289. 



54 ELEMENTS OF ECONOMICS 

VII. The Function of the Clearing House (1) 283-285; 

(3) 503-513 

VIII. Classes of American Banks (1) 313-315; (2) 349-350 

1. As to authorization by 

a. National charter. 

(1) Federal reserve banks. 

(2) National banks. 

b. State charter. 

(1) State banks. 

(2) Loan and trust companies. 

(3) Savings banks, 
c* General state law. 

(1) Private. 

2. As to dominant type of business (2) 350-351. 

a. Investment banks. 

b. Commercial banks. 

IX. Defects of Our Banking Organization Before the 
Adoption of the Federal Reserve System 

1. Lack of system (1) 303-304. 

2. Inelasticity of credit (1) 301-303; (4) 249-250. 

3. Inelasticity of currency (1) 300-301. 

4. Periodic local congestion of funds (1) 295-297. 

5. Inadequate territorial distribution of banking facil- 
ities. 

6. Lack of provision for foreign banking. 

X. The Federal Reserve System (1) 307-312; (3) 539-545 
1. The organization of the system. 

a. The Federal Reserve Board. 

b. The Federal Advisory Council. 

c. The Federal Reserve Banks. 

d. The Member Banks. 

2. Powers of the Federal Reserve Board. 

3. Duties of the Federal Advisory Council. 

4. Functions of the Federal Reserve Banks. 

a. Rediscounting of commercial paper (4) 255-256 

b. Issuance of notes to circulate as paper money 

(4) 257-259. 

c. Custodianship of the central reserves of the system 



CREDIT AND BANKING 55 

d. Establishment of branch banks. 

e. Fiscal agent of the United States government. 

f. Miscellaneous "open-market" operations. 
Functions of member banks. 

a. The National banks (1) 291-293. 

b. State banks. 



Eeferences 

(1) Ely, E. T., Outlines of Ecoiiomics, Ch. XV. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 120- 
125, 128-132, 329. 

(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 147, 148, 149, 150, 151, 153, 
159. 

(4) Hamilton, W. H., Current Economic Problems, Sees. 124, 
127, 128. 

Exercises 

lA. a. Construct a bank balance sheet from the following data : 

United States bonds $100,000 

Capital 100,000 

Loans and discounts 800,000 

Buildings and fixtures 100,000 

Undivided profits 10,000 

Surplus 20,000 

Deposits 1,000,000 

Cash 70,000 • 

Due from other banks 100,000 

Circulating notes outstanding 40,000 

b. If this bank discounts, at 6%, a promissory note for 
$20,000 (face value), due in three months, and gives 
bank credit in exchange, what changes must be made 
in this bank statement? Answer by putting corrected 
figures in parentheses after original figures in state- 
ment. 



56 ELEMENTS OF ECONOMICS 

2A. Construct a bank balance sheet from the following data : 

United States bonds $100,000 

Capital stock 150,000, 

Loans and discounts 1,050,000 

Surplus 100,000 

Cash 50,000 

Due from other banks 250,000 

Building and fixtures 50,000 

Circulating notes outstanding 100.000 

Undivided profits 50,000 

Deposits 1,100,000 

This bank discounts a note for $50,000 due in 4 months at 
6%, giving in exchange $40,000 in a bank draft upon a 
correspondent bank, the remainder being given in deposit 
credit. Correct the above statement, placing corrected 
figures in parentheses, in accord with this transaction. 



SOME MONETARY PROBLEMS 57 



CHAPTER XIV— SOME MONETARY PROBLEMS 

The Problem of the General Price Level 
The general level of prices changes over periods of. time. 
When the trend is upward, as it has been since 1896, those 
whose incomes do not rise correspondingly suffer hardship 
due to their decreased purchasing power. To explain these 
changes in the price level and to suggest means of procur- 
ing greater stability of prices are the theoretical and ap- 
plied aspects of the "problem of the general price level." 

1. Meaning of price level (1) 317-319. 

The concept of the "general price level" is reached 
when we compare the price ratio of money to other 
goods at a given time with its ratio at some other time. 
These changes in the value relationship of goods and 
money are expressed by percentages called index num- 
bers, the price in some year taken as a base being con- 
sidered as 100. 

The general level of prices measures the value of 
money — its power of exchange. The value of money 
and the general price level are tAvo aspects of the same 
fact : the exchange ratio of money and goods. The 
higher the price level, the lower is the purchasing 
power of money and vice versa. 

2. Use of index numbers to indicate changes in the price 
level (1) 337-342. 

a. Meaning of index numbers. 

Index numbers may be defined as relative numbers 
in which data for a given period of time are taken, 
as a base, usually indicated as 100, upon which 
data for other periods of time are computed as per- 
centages. Index numbers are usually simple or 
weighted arithmetic averages of relative numbers, 
but not necessarily so. Sometimes, for instance, 
the sums of prices are compared in the computa- 
tion of an index number, and averages other than 
the arithmetic average may also be used. 



58 ELEMENTS OF ECONOMICS 

b. Averages used in the construction of index numbers. 

(1) Arithmetic average. 

(a) Simple. 

(b) Weighted. 

(2) Median — the item in an orderly array which 
divides the distribution of items into equal 
parts. 

(3) Mode — the most frequently occurring item in 
an array. 

c. Graphic presentation of index numbers. 
(Students are expected to be able to interpret index 
number graphs, like the graph published weekly in 
the Aniwlist, showing the fluctuation in the whole- 
sale price of twenty-five food products represent- 
ing the principal items in a family budget.) 

3. The equation of exchange (1) 321-325. 
M V plus M^ V^ equals P T. 

The equation of exchange expresses the fact that the 
total amount paid for things during a period of time 
equals the sum of the prices of all the units purchased. 
As such it is a truism, and holds no matter what theory 
one entertains concerning the movement of prices. 

4. The quantity theory of the general price level (1) 319- 
321, 324. 

Quantity theorists assert that "p" in the above equa- 
tion is a resultant of the other factors, that prices rise 
and fall in direct proportion to changes in the quan- 
tity of money. (For the process by which this is ac- 
complished see (1) 325-327.) 

5. The commodity theory of price based on marginal util- 
ity of the standard commodity (1) 327-331. 

The opponents of the quantity theory contend that " p " 
is not passive but an active or causal factor in the 
equation of exchange. They show that the price level 
varies directly with the demand for goods and inversely 
with their supply, directly with the supply of gold 
and inversely with the demand for gold, gold having 
both a monetary and an industrial use. 



SOME MONETARY PROBLEMS 59 

II. The Problem of Improving the Standard op Deferred 
Payments (1) 336-337 

1. Meaning of standard of deferred payments. The 
standard of deferred payments is the commodity in 
which the amount of a debt is payable. Gold is the 
standard of deferred payments established by law in 
this country. 

2. Fluctuations in the value of the standard of deferred 
payments. A loan, representing a given amount of pur- 
chasing power when made, may represent a larger or 
smaller purchasing power at the time of maturity. 

a. An appreciating standard. 

b. A depreciating standard. 

3. Significance of "cheap money" movements in the 
United States. 

4. Suggested improvements in the standard of deferred 
payments. 

a. The tabular monetary standard (1) 342-343. 

b. The compensated dollar (3) 474-483. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XVI. 
(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 138, 139, 140. 

Exercises 

lA, Given the following prices: 

1890 1900 1910 

Flour per sack $1.00 $1.05 $1.50 

Potatoes per bushel '.50 .70 .75 

Salt per pound .05 .06 .04 

Eggs per dozen .16 .20 .24 

a. Construct by means of the simple arithmetic average 
method using relative prices a composite index num- 
ber for each year using 1890 as the base year. 

b. Is this a good index number to show changes in the 
general price level"? "Why? 



60 ELEMENTS OF ECONOMICS 

c. If this index number is a correct index of price 
changes, who is benefited most 

(1) The debtor or the creditor class? Why? 

(2) Salaried men or entrepreneurs? Why? 

2A. Given the following prices : 

1910 1918 

Flour per sack $1.25 $3.00 

Potatoes per bushel .80 1.20 

Steel per ton 28.00 24.00 

Cotton per pound .08 .24 

Salt per pound .05 .04 

a. Construct by simple arithmetic average a composite 
index number, using relative prices (percentages) for 
1918. Base your computation upon 1910. 

b. If the above commodities, five in number, were used 
as a basis for a tabular monetary standard, what 
change would you make in your method of computing 
your index number? Why? 

3 A. Suppose that you had $1,000 to invest and were convinced 
that during the next five years prices would rise. Suppose 
you have eliminated from consideration all but the three 
year bonds and the common stock of a certain industrial 
corporation, both of which securities are reasonabl}^ safe. 
Show how the probability of rising prices will affect your 
judgment in selecting your investment. 



FOREIGN EXCHANGE 61 



CHAPTER XV— FOREIGN EXCHANGE AND INTER- 
NATIONAL TRADE 

I. The Mechanism op Foreign Exchange (1) 345-350; 
(4) 275-277 

1. Nature of foreign exchange. 

2. The process of negotiating foreign exchange. 

3. The determination of the price or rate of foreign ex- 
change. The price of foreign exchange like the mar- 
ket price of anything else is an expression of the in- 
teraction of the demand for and the supply of bills of 
exchange. Into the determination of the price of for- 
eign exchange there enter three factors: 

a. Amount of pure gold in the monetary units to be 
exchanged. 

b. Cost of shipping gold. 

e. General credit conditions (3) 549-558. The ac- 
tual rate of exchange between any two countries 
is determined by the relations between the de- 
mand for and supply of foreign bills of exchange 
and these depend upon the trade and credit rela- 
tions of the two countries. Take England and the 
United States as examples. Whatever necessitates 
the transfer of funds from the United States to 
England is a source of demand for bills of ex- 
change on London. These are wanted 

(1) To pay for merchandise imports. 

(2) To pay for securities purchased by us abroad. 

(3) To pay the interest and dividends on for- 
eign capital invested here. 

(4) To pay the freight and insurance earned by 
England. 

(5) To pay the expenditures of American tour- 
ists and residents abroad. 

(6) To pay maturing finance bills. 
Whatever necessitates the transfer of funds from 
England to the United States is a source of supply 
of bills of exchange. These are sold 



62 ELEMENTS OF ECONOMICS 

(1) To collect for merchandise exports. 

(2) To collect the purchase price of securities 
sold by us abroad, the purchaser being 
drawn upon for the purchase price. 

(3) To secure loans of foreign money in Amer- 
ica, the lender being drawn upon for the 
amount of the loan. 

(4) To borrow funds — finance bills, 

11. The Reciprocal Nature of International Trade 
(1) 361; (4) 270-271 

III. The Advantages of International Trade: The Prin- 
ciple OF Comparative Costs (1) 361-366; (2) 243-244, 
391-394 

If a country observes the principle of comparative costs 
in the development of its industries, it will produce for 
export those things in the production of which it enjoys 
the greatest comparative advantage or suffers the least 
comparative disadvantage. If a country wishes to adopt 
the comparative costs principle in production, it should 
devote itself to those industries in which its labor can be 
most effectively applied. 

IV. The Importance of International Trade 

1. Need of international trade for countries that are not 
self-sufficing. 

2. Means for the extension of America's foreign trade. 

V. The Regulation of International Trade (1) 358-360 

1. Mercantilistic regulations. 

2. The policy of laissez faire and free trade. 

3. The policy of protection. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XVII. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 90, 
147. 

(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 162-166, 168-169. 

(4) Hamilton, W. H., Current Economic Problems, Sees. 133, 
136, 139. 



FOREIGN EXCHANGE 63 



Exercises 



IR. Show how the following affect the price of sterling ex- 
change in New York: 

a. Heav}'- imports of merchandise into the United States. 

b. A high interest rate in London in comparison with 
New York. 

c. The maturing of the bonds of American corporations 
held by British investors, the latter wanting their 

funds. 

d. Insurance payments to Lloyd's. 

2A. Assume that the labor costs are the real comparative costs. 
Waiving other considerations, if it takes 50 days' labor to 
produce a ton of tin in the United States and only 40 in 
England, and if it costs 20 days' labor to produce a ton of 
steel rails in the United States and 18 in England, would 
it pay for the United States to export or import steel rails ? 
State the principle involved. 

3A. Country A can produce pig iron at a cost of 10 days' labor 
per ton and broadcloth at a cost of 5 days' labor per yard. 
Country B can produce the iron at a cost of 14 days ' labor 
and the cloth at a cost of 6 days' labor. If the trans- 
portation and all costs other than labor be ignored, will an 
exchange between these two countries be possible so far as 
these two commodities are concerned? If so, what rate 
of exchange would be profitable to both countries? 

4R. Explain the old mercantilistic fallacy that there is neces- 
sarily something essentially favorable about an excess of 
merchandise exports over imports. 

511. Discuss in as logical a way as possible the steps which, in 
your opinion, the United States must take in order to play 
a larger part in international trade after the war than be- 
fore 1914. 



54 ELEMENTS OF ECONOMICS 



CHAPTER XVI— TARIFF POLICIES 

I. The Meaning and Purpose of Tariffs 
II. Kinds of Tariff Duties on Imports 

III. The Arguments for Protection Together with Their 
Historical and Present Validity as Applied to the 
United States (1) 368-374 

1. Promotion of nationalism. 

2. Protection of infant industries (4) 298-301. 

3. Development of the industrial independence so de- 
sirable in the event of war (4) 307-309. 

4. Development of the home market (3) 590-591. 

5. Defense against "dumping." 

6. Protection of the wages of labor. 

IV. The Argument for Free Trade Together with Its 
Historical and Present Validity as Applied to the 
United States (1) 374-380; (3) 597-608; (4) 273-275 
1. The comparative costs argument. The free trader 

argues that the existence of a system of free trade 
will make it possible for every nation to develop it- 
self through industries in which its labor can be 
most effectively applied and for which it has the 
greatest natural aptitudes. He contends that the 
free trade system will make possible the greatest in- 
ternational division of labor. 

a. Economic aspects of the comparative costs argu- 
ment. 

b. Political aspects of the comparative costs argu- 
ment. 

V. Tariff Policies of the United States (3) 578-584; 
(4) 313-318 

VI. The Permanent Non-Partis an Tariff Commission 

1. Its organization. 

2. Its functions. 

3. Its probable developments. 



TARIFF POLICIES 65 



References 

'!) Ely, R. T., Outlines of Economics, Cli. XVIII. 

(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 171, 174, 177. 

(4) Hamilton, W. H., Current Economic Problems, Sees. 135, 
149-164, 170-172. 



66 ELEMENTS OP ECONOMICS 



Part VI — Distribution 



CHAPTER XVII— THE MARGINAL PRODUCTIVITY 
THEORY OF DISTRIBUTION 

i. Nature of Distribution (1) 384-388 

1, "Distribution" means the apportionment of the value 
of any industrial product among the agents contribut- 
ing to its production. 

2. The "product" of any agent means that net increase 
in the total value of the output which is due to the use 
of the given agent. 

II. The Law of Diminishing Productivity (1) 388-390 
With a fixed supply of other agents, if successive units of 
a given agent are added, a point is soon reached beyond 
which the product per unit of the given agent diminishes 
as the number of units is increased. 

III. The Marginal Product (1) 390-395 

When a given number of identical units of an agent is be- 
ing used in a given industry or establishment, the differ- 
ence in the total value of the product occasioned by a 
change of one unit in the number of units employed is 
called the marginal product. 

IV. Relationship of the Value of the Marginal Product to 
the Number of Units Employed by an Entrepreneur 
(1) 395-400 

"In order to achieve maximum profits, each entrepreneur 
will endeavor, so far as it is practicable, to apportion his 
use of land, labor, and capital so that the value of the in- 
crement of product attributable to the marginal unit of 
each class of productive agents will about equal its ex- 
pense" (1) 396. 



THEORY OF DISTRIBUTION 



67 



V". The Marginal Productivity Theory op Distribution 

1. ^ Statement of theory. The marginal productivity the- 

ory of distribution may be stated as follows : If com- 
petition works freely, the remuneration of each factor 
in production tends to equal its marginal product. 

2. Limitations of the theory (1) 403-404. 

3. Value of the theory. 

4. Social aspects of the theory (1) 404-405. 

References 
(1) Ely, R. T., Outlines of Economics, Ch. XIX. 



Exercises 

lA. Given a* farm and a definite amount of capital. A labor- 
er's yearly wage is $500. 

$600 

1100 

_____ 1900 



2A. 



By , employing 1 laborer the yield is 
2 
3 



ers 



2700 
3300 
3900 
4200 
4500 



How many laborers are employed before the point of 
diminishing productivity is reached? Will it pay the 
farmer to keep on adding laborers? What is the maxi- 
mum number which he can economically employ? 
Labor is to be applied on a given farm with a fixed 
amount of capital. Draw a diagram to show the following : 
a. Number of laborers employed and marginal laborer. 
Point where diminishing productivity begins. 
Product of the marginal laborer. 
Total product of land, labor, and capital. 
Total amount paid for wages. 

(The student should make some attempt to have his 
hypothetical figures concerning the size of the farm, 
amount of capital, and number of laborers correspond 
with some farm situation that he knows.) 



68 ELEMENTS OF ECONOMICS 

oA. If the population of the United States increases 25% while 
the amount of land and capital each remains stationary, 
what will be the effect on wages? interest? rent? Ex- 
plain in terms of marginal productivity of labor, of cap- 
ital, and of land. 



RENT OP LAND 69 



CHAPTER XVIII— THE RENT OF LAND 

I. The Nature of Rent (1) 407-408 

Popularly the word "rent" is used to describe the 
amount paid by one person to another for the temporary 
use of a durable good, which is to be returned to the 
owner when the specified period of use has expired, e. g., 
the rent of a house, the rent of an automobile, the rent 
of a gown or dress suit, the rent of a textbook, etc. In 
most economic treatises, however, the term "rent" is 
used in a more special sense to describe the income de- 
rived from the ownership of land. 

1. ''Economic rent" may be defined as the annual use 
value of a piece of land. With the same applica- 
tion of labor and capital some pieces of land are 
more productive than others. In this superior pro- 
ductiveness lies the possibility of paying more for 
the use, or valuing more the possession, of one piece 
of land than another. 

2. "Commercial or contract land rent" is the amount 
actually paid for the services of land. Assuming 
perfect competition, the landlord cannot exact more 
than the economic rent from his tenant, nor can the 
tenant secure the land for less. Due to imperfect 
competition, custom, long-time contracts, ignorance, 
etc., the contract rent may vary widely from the 
economic rent. 

II. Causes op the Differential Return of Land (1)'408- 
410 

1. Differences in the quality of land. 

a. Physical. 

b. Chemical. 

c. Biological. 

2. Differences in location. 

III. Measurement op Rent 

1. Under assumed conditions of uniform intensivity of 
cultivation from the extensive margin (1) 410-412. 



70 ELEMENTS OF ECONOMICS 

2. Under conditions of varying intensivity of cultiva- 
tion from the intensive margin (1) 413-414. 

As a result of an increased demand for the pro- 
ducts of the land, and the operation of the law of 
diminishing productivity or diminishing r,eturns, the 
poorer lands have to be cultivated, and the better 
lands have to be cultivated more intensively. 

3. Statement of the theory of rent (1) 415. 

' ' The rent of any piece of land is measured by the 
difference between the money value of the products 
obtained from it by the use of the most advantageous 
amounts of labor and capital, and the money value 
of the products which could be obtained by the use 
of the same amounts of labor and capital on mar- 
ginal land, or at the intensive margin of cultiva- 
tion" (1) 415. 

It is of course assumed that the entrepreneur will 
employ whatever amount of marginal land he finds 
most profitable. 

IV. The Importance of Different Uses of Land in the 
Theory of Rent (1) 416-418 

Land may be used for a great variety of purposes, in- 
cluding business, industrial, and residence sites, truck 
gardening, farming, and grazing. 

Land that is marginal for one purpose is not necessarily 
marginal for all purposes. The marginal lands used 
for comparison in the theory of rent are the poorest 
lands it pays to use for any purpose. 

V. The Capitalization of Rent and the Value of Land 
(1) 418-419 

"The process by which the capacity to yield a certain 
annual income is made the basis for the determination of 
a certain selling price is termed 'capitalization' " 
(1) 418-419. 

Land is valued because it commands a rent ; its value is 
determined through the capitalization of its economic 
rent, although where land rents are increasing, the sell- 
ing value of land is apt to be higher than the capitaliza- 
tion of its present economic rent. 



^ , RENT OF LAND 71 

Like the value of everything else, the value of land is 
a resultant of the interaction of the demand for and tne 
supply of land. As population and wealth increase, 
necessitating a more intensive utilization of land bi 
cause of its limited supply, rents increase and land be 
comes more valuable. 

vi. Factors Affectixng Rents (1) 419-422; (3) 620-626 

1. Increase in population. 

2. Increase in the efiiciency of agricultural labor. 

3. Increase in the amount or ei'iiciency of agricultural 
capital. 

4. Improvements in transportation. 

5. Special factors affecting urban rents. 

a. Commercial. 

b. Residential. 

VII. The "Unearned Increment" in Land Values (1) 422- 
425 

1. Its meaning and existence. An ''unearned incre- 
ment" in the value of land is an increase in value 
due primarily to social forces rather than to the ef- 
forts of the individual owner. It usually comes 
about through growth in population. The shifting 
of population may bring about an "unearned decre- 
ment. ' ' 

2. Unearned increment taxation. 

a. Its justice. 

b. Its limits. 

VIII. The Socialization of Economic Rent or Single Tax 
Plan 

1. Nature of the single tax proposal (1) 679-680. 

2. The case for the single tax (1) 680; (3) 889-897; 
(4) 724-726. 

3. Objections to the single tax (1) 680-682; (3) 889- 
897; (4) 726-727. 

a. Ethical. 

b. Political. 

c. Economic. 



72 ELEIMENTS OP ECONOMICS 



Heferences 



(1) Ely, K. T., Outlines of Economics, Ch. XX. 

(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 178, 180, 181, 182, 256-257. 

(4) Hamilton, W. H., Current Economic Problems, Sees. 351- 
353. 

Exercises 

lA. A farmer who is capa])le of earning $1,000 elsewhere em- 
ploys intelligently on his farm $4,000 worth of capital 
and 600 days of hired labor. Wages are $2.00 per day 
and interest rates 6%. His capital Avears out at the rate 
of $400 per annum. His average crop sells for $3,600. 
Find the rent of land. 

2A. Given the following normal data pertaining to a wheat 
farm: Acres cultivated 320; yield per acre 20 bushels; 
selling price of wheat $1 per bushel; annual value of 
farmer's service $1,000; number of men employed 7; 
number of months each laborer worked 6; monthly wage 
of each laborer $50 ; value of capital goods employed 
$7,000; annual depreciation of capital 10% ; interest rate 
6% ; annual expenditure for insurance and taxes $620. 

a. Determine the annual economic rent of the farm. 

b. If this is the normal return on the farm, at what 
price would you be willing to purchase it? 

3D. Under what circumstances, if any, may contract land 

rent exceed the economic rent? economic rent exceed 

contract land rent? 
4D. Discuss what is meant by the margin of utilization of 

land, distinguishing betAvcen the extensiA'e and intensive 

margins of use. 
5D. Would economic rent disappear 

a) If all land Avere owned by the government? 

b) If there Avere no law of diminishing returns in agri- 
culture ? 

c) If there Avere an abundant supply of the so-called 
"better lands"? 

6D. Trace the effect of an increase in population of 100% on 
agricultural and urban rents. 



RENT OF LAND 73 

7D. Account for the decline of property values in an exclu- 
sive residential section of a university city with the es- 
tablishment there of fraternity and sorority houses. 

8D. Why should the shady side of a business street have any 
effect upon the commercial rent which a business firm 
can pay for the use of its premises'? 

9R. Brief the case for and against the single tax. 
lOA. Would the appropriation of economic rent by government 
have any effect upon the settlement of the cut-over lands 
of northern Wisconsin? 



74 ELEMENTS OF ECONOMICS 



CHAPTER XIX— THE WAGES OF LABOR 

I. The Wage Situation in the United States 

1. Existence of a wage-earning class. 

2. Number of wage earners in the United States. 

3. Statistical data concerning wages in the United 
States (2) 565-569. 

II. The Nature of Wages (1) 427 

"Wages constitute the price paid for the services of 
labor" (1) 427. 

1. Money, or nominal wages. 

2. Real wages. 

III, The Process of the Determination of Wages 

The process of the determination of wages, like the de- 
termination of rent and interest, is a problem in valua- 
tion. The general principles of value are applicable 
here, and hence the interaction of demand and supply 
must be studied. "So far as the wages of any one kind 
of labor are concerned, they will tend to be fixed at the 
point where the supply of that kind of labor and the de- 
mand for it are in equilibrium" (1) 428. 

IV. Analysis of the Demand for Labor (1) 428-430 

1. Meaning of the demand for labor. 

2. Elasticity in the demand for labor. 

a. Charges in the demand for the products of labor. 

b. Ease of substitution of capital goods or natural 
resources for labor. 

V. Analysis of the Supply of Labor (1) 431-437 

1. Meaning of the supply of labor. 

2. Distinctive characteristics of the labor supply 
(1) 431-432; (2) 560-562. 

a. Perishability. 

b. Inseparability of labor from the person of the 
laborer. 

c. Comparative immobility. 



** WAGES OF LABOR 75 

3. Relation of the structure of the population to the 
supply of labor (1) 432^34. 

a. Sex. 

b. Age. 

e. Efficiency, 

4. Relation of the growth of the population to the sup- 
ply of labor (1) 434-437. 

a. Statement of the Malthusian theory of popula- 
tion (4) 457-460. 

b. Appraisal of the theory. 

VI. Theories Purporting to Explain the Determination. 
OF Wages 

Among the most celebrated of the theories which have 
been offered in expland,tion of the determination of 
wages and which have adherents today are the following : 

1. The subsistence theory of wages (1) 437-4^8; 
(3) 643-644. • 

2. The standard of life theory of wages (1) 438^39. 

3. The marginal or specific productivity theory of 
wages. This theory asserts that wages are measured 
by the marginal productivity of labor, i. e., by the 
value added to the product by the laborer who finds 
employment under conditions least favorable to his 
productiveness. 

The standard of life theory of wages is of value in 
explaining the long time supply of labor. The mar- 
ginal productivity theory of wages sheds some light 
on the demand for labor. 

VII. The Wage Contract (1) 442 

The interaction of the demand for labor and the supply 
of labor in the determination of wages finds expression 
in the wage contract. The wages actually paid are fixed 
by agreement between the employer and employee. This 
agreement reflects the subjective value which the em- 
ployer places upon the services of the prospective laborer, 
and the subjective value which the laborer places upon 
his own services. It is a process similar to the deter- 



76 ELEMENTS OP ECONOMICS 

mination of any other market price and differs for each 
grade of labor. 

1. The individual Avage bargain. 

2. The collective wage bargain. 

3. The check furnished by a legal minimum Avage. 

VIII. Factors Influencing Wages 

1. The option of free land. 

2. The introduction of improved machinery. 

a. Early opposition of laborers. 

b. Short time effects. 

c. Long time effects. 

3. Nature of the occupation. 

a. Its agreeableness, or disagreeableness. 

b. Its regularity or irregularity. 

c. Its safety or danger. 

d. Its responsibility. 

e. Expense of requisite education. 

References 

(1) Ely, E. T., Outlines of Economics, Ch, XXI. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 220, 
223. 

(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sec. 187. 

(4) Hamilton, W. H., Current Economic Problems, Sec. 225. 

Exercises 

IR. Show how money wages may advance and at the same time 

real wages decline. 
2D. The wages of any laborer are an expression of the demand 

for and the supply of labor. What labor demand is 

meant ? 

a. Demand for labor in general? 

b. Demand for labor in his particular trade ? 

c. Demand for any kind of work that he can do? 

3D. Do the laborers of the building trades of a given city profit 
by a general conflagration in that city ? Do they profit by 
the erection of many public buildings? 



^ WAGES OF LABOR 77 

4D. Can the labor supply ever increase without a correspond- 
ing increase in population? 

5R. State the Malthusian theory of population, showing its ap- 
plication and limitations. 

6D. Show what is meant by the marginal productivity theory 
of wages. Is this theory inconsistent with the statement 
that the demand for and supply of labor determine wages ? 

7A. Trace the influence of free land upon wages in the United 
States. 

8D. Why is it that the heavy, dirty, and disagreeable work of 
the world is usually paid less than agreeable work? 

9D. Cite as many reasons as you can why the skilled trades to- 
day are more remunerative than clerical and semi-intel- 
lectual work. Why isn't there a great flow of labor from 
the latter to the former group? 



78 ELEMENTS OF ECONOMICS 



CHAPTER XX— THE INTEREST OF CAPITAL 

I. The Nature of Interest (1) 493 

1. Loan interest. The investor, unwilling himself to take 
the entrepreneurial risk, receives a price for the use 
of his money or goods for a definite period of time, 
which is called loan interest. When interest is defined 
as "the price paid for the services of capital", loan 
interest is usually meant. 

2. Imputed interest is "that portion of the value of the 
products of industry which is attributed or imputed 
to the services of capital, as distinct from the services 
of land and labor". It is with imputed interest that 
we are concerned in the problem of distribution. But 
in our analysis of the interest problem we shall have 
to consider both loan interest and imputed interest; 
"We shall have to deal with capital as a loanable fund, 
in whatever form it may be invested. 

II. The Former Disrepute of Interest Taking' (1) 493-494 

III. Distinction Between Gross Interest and Net Interest 
(1) 523 

1. Gross interest or loan interest involves a payment for 

a. Supervision of investment. . 

b. Risk of investment. 

c. Waiting. The amount actually necessary to recom- 
pense marginal waiting is called net interest. 

IV. The Process of the Determination of the Interest 
Rate (1) 515-523 

The rate of interest equals the price paid per annum for 
a given loan divided by the face value of the loan. 

The process of the determination of the interest rate, 
like the determination of rent and wages, is a problem in 
valuation. The interaction of the demand for capital and 
the supply of capital must be studied. It is because some 
persons place a comparatively high subjective value upon 
present in comparison with future goods that there is a de- 



INTEREST OF CAPITAL 



79 



mand for loanable funds. And it is because some people 
have a comparatively low time preference for present as 
compared with future goods that there is a supply of loan- 
able funds The interest rate will normally be fixed where 
the demand for and supply of loanable funds is m equilib- 



num. 



V Sources of the Demand for Loanable Funds 

The demand for loanable funds comes from persons with 
a high time preference including : ^ • • . 

1 Entrepreneurs, who are interested in the productivity 
of capital. This productivity of capital (by which we 
mean that when capital is used in production under 
the wise guidance of entrepreneurs it results m a more 
valuable product than when capital is not used) ex- 
plains the possibility of interest. The productivity 
that determines the interest that can be imputed to 
capital is the marginal or specific productivity of cap- 
ital-the value by which the total product would be 
decreased if any particular unit of capital were not 

used (1) 495-496. ^ v • • ' 

2 Consumers, who are willing to forego some of their m- 
■ ' come as an interest payment for the use of present 

goods. 

a. Consumers having intense present wants, 
b Consumers having small present income, 
c Consumers anticipating a large future income, 
d. Consumers having a hazy view of the importance 
of future wants due to 

(1) Ignorance. 

(2) Natural improvidence. 

VI Sources of the Supply of Loanable Funds 

1. The supply of loanable funds comes from persons with 
a low time preference because of 

a. Confidence in the future security of savings due to 

(1) Stability of government. 

(2) Stability of banking institutions and laws. 

b. Large present income. 

c. Anticipation of a small future income. 



gQ ELEMENTS OP ECONOMICS 

d. Clear view of the urgency of future needs due to 

(1) Education. 

(2) Natural prudence. 

2. The relation of interest to the supply of capital 
(1) 496-499. 

While some saving would occur even if no interest 
were paid, the payment of interest is a great stimulus 
to saving and the accumulation of a supply of capital. 

Interest is necessary as a compensation for waiting, 
which most people consider a sacrifice. At any given 
time most people consider present goods worth more 
to them than future goods of like kind and number. 
The reasons for this "time preference" are: 

a. The inability of most people to visualize future 
wants as clearly as present wants. Present wants 
are felt as more urgent. 

b. The uncertainty of life. 

c. The hope that perhaps the future will take care of 
itself. 

References 

(1) Ely, R. T., Oiiflines of Econonuca, Ch. XXIV, pp. 493- 
499, 515-524. 

Exercises 

IR. State the marginal productivity theory of interest. 

2D. It is sometimes said that the interest rate is measured by 
the marginal productivity of capital. Is it inconsistent 
with this statement to assert that the interest rate is a re- 
sultant of the interaction of the demand for and the sup- 
ply of loanable funds ? 

3D. Show how in your opinion tlie following tend to affect the 
interest rate of any given market : 

a. The education of the people concerning the elimination 
of waste. 

b. The education in thrift given the people in our various 
liberty loan and war savings campaigns. 

e. The world war. 

d. An increase in the supply of money. 



^ INTEREST OP CAPITAL 3]^ 

4D. Suppose our annual national income to be fifty billion dol- 
lars. The United States Government proposes to raise 
during the fiscal year 1918-1919 the sum of twenty-four 
billion dollars. Show how this will affect the current rate 
of interest and the rate of return in various types of en- 
terprise. 

5D. If a corporation declares, an unearned dividend, do the 
stockholders receive interest? If not, what do they re- 
ceive ? 



82 ELEMENTS OF ECONOMICS 



CHAPTER XXI— THE PROFITS OF THE ENTRE- 
PRENEUR 

I. Function of the Entrepreneur (1) 537-538; (2) 266- 
267, 516-518, 852-862. 

The entrepreneur is the person, or group of persons, 
that assumes the risk of the business enterprise. He 
profits if the business succeeds and loses if the business 
fails. As distinguished from the landlord, laborer, and 
capitalist, he is often spoken of as the "business man". 
While these other three claimants to the product of in- 
dustry are the. recipients of incomes which he has con- 
tracted to pay, he himself is the recipient of a non-con- 
tractual income. 

To be sure "every one who has risked something on the 
success or failure of a particular business undertaking is, 
in that degree, entrepreneur." (1) 538. The term is, 
however, most usually applied to the active capitalist, 
rather than to the passive investor. 

The entrepreneur is ultimately responsible for the man- 
agement of the enterprise, and is deeply interested in it, 
but this is a function which he can delegate to an em- 
ployee. 

II. The Nature of Profits (1) 525-527 

Profits constitute the residual share of the product of 
industry which goes to the entrepreneur. What is left 
as a net gain to the entrepreneur, who has assumed the 
financial risk, after meeting all claims against the busi- 
ness, constitutes his profits. Profits are a non-contractual 
income in contrast to contract rent, wages, and interest, 
which are contractual incomes. 

Profits are a rather complex income. Being a surplus 
over all expenses of production, they "do not constitute 
a homogeneous income determined by any one principle 
or set of principles", as is the case with rent, wages, and 
interest. Two very diverse elements are usually included 
in profits, namely, the entrepreneur's wage and pure 



^ PROFITS OP ENTREPRENEUR 83 

profits. The entrepreneur's wage, or the wages of man- 
agement, constitutes a minimum necessary to induce the 
entrepreneur to engage in and continue his work. It 
does not differ essentially from wages, and is really an 
item in the expenses of production. Pure profits consti- 
tute the real residual income and the prize which entre- 
preneurs seek. 

III. Classification of Pure Profits 

1. As to type of business. 

a. Competitive. 

b. Monopolistic. 

2. As to magnitude. 

a. Necessary. 

b. Surplus. 

(1) Current meaning of "excess profits." 

(2) Current meaning of "war profits." 

3. As to source. 

a. Risk gains arising from ordinary business or from 
exceptional opportunity. There is an element of 
uncertainty in all business due to chance or un- 
certain events (2) 518-519; (3) 795-796. 

b. Surplus gains due to exceptional entrepreneurial 
ability. Such profits are analagous to rent 
(1) 532; (3) 790-794. 

IV. The Possible Continuance of Pure Profits (1) 527-532 

1. Pure profits are sometimes due to the imperfect func- 
tioning of competition in 

a. Incomplete adjustments in the price situation as it 
exists at any one time. 

b. Changes in the general price situation. 

Profits due to the imperfect functioning of com- 
petition tend to disappear. 

2. Pure profits aie also due to the creative effort of the 
entrepreneur. Such profits will not disappear with 
the perfection of competition. The active capitalist is 
usually able to secure a higher rate of return on his 
investment than the passive investor secures. It is 
this excess of income of active capital over the pre- 
vailing rate of interest, that constitutes the particular 
reward of the entrepreneur in the form of pure profits. 



84 ELEMENTS OF ECONOMICS 

V. The Relation of Profits to Other Shares in Distribu- 
tion — The Marginal Productivity Theory of Distribu- 
tion (1) 532 

VI. Profits and the Justification of the Competitive Sys- 
tem (1) 538-540 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXV. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 100, 
199, 200, 326-328. 

(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 224, 225, 226, 227. 

Exercises 

ID. The American Telephone and Telegraph Company has 
thousands of stockholders and many bondholders. It has 
a board of directors and the usual officers. It has a gen- 
eral manager and district and local managers. Who is the 
entrepreneur that receives profits? 

2A. A person has an income of $25,000 annually derived from 
the following sources : 

a. Law practice, $8,000. 

b. U. S. bonds, $1,000. 

c. Bethlehem Steel Corporation Stock, $5,000. 

d. A business l^lock rented to a general merchandise firm, 
$1,000. 

e. Stock in a Michigan copper mine, $5,000. 

f. A stock dividend received in a stock-watering opera- 
tion, $5,000. 

Show by clear analysis which, or what parts of each, 
of these incomes may be considered rent, wages, inter- 
est, and profits. 
3R. Show the i-elation of profits to the marginal productivity 
theorv of distribution. 



DISTRIBUTION OF WEALTH 85 



CHAPTER XXII— THE DISTRIBUTION OF WEALTH 
AMONG PEOPLE 

I. The Nature of Wealth and Income 

1. From the individual point of view (1) 108-109; 542. 

2. From tlie national or social point of view (1) 111-114. 

II. Facts Concerning the Existing Distribution of Wealth 
Among the People of the United States 

1. The total available for distribution (1) 111-114; 
(2) 694. 

2. The actual distribution among the various economic 
classes (1) 544-549; (2) 695-698. 

III. Forces Promoting the Concentration of Wealth 
(2) 689-691 

IV. Evils in the Concentration of Wealth (2) 687-689 

V. The Problem of Poverty 

1. The nature of poverty (2) 700-702. 

2. The causes of poverty (1) 549-551; (2) 702-704. 

3. The remedies for poverty (2) 705-708. 

YI. The Problem of Improving the Distribution of Wealth 
(1) 551-553 

1. Necessity of adopting some equitable basis of wealth 
distribution. 

2. The problem of regulating the acquisition of wealth 

(1) .553-555. . . 

3. The problem of wealth diffusion (1) 555. 

4. The advantages of a more general diffusion of wealth 

(2) 686-687. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXVI. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 262- 
274. 



86 ELEMENTS OF ECONOMICS 



Part VII — Problems of Industrial Organization 



CHAPTER XXIII— CAPITALISM AND THE WAGES 

SYSTEM 

I. The Emergence of Capitalism (2) 154-164 

II. Some Salient Characteristics of Present-Day Cap- 
italism (2) 144-147 

1. It is individualistic, yet co-operative. 

2. It is pecuniary. There had to be considerable accum- 
ulations of money before capitalism could develop, 
and this meant saving. 

3. It implies production for large general markets. 

4. It implies development of the industrial arts or prog- 
ress in technology, making possible the use of highly 
productive capital goods. 

5. It implies the control of accumulated wealth for pur- 
poses of further production by a group of "business 
men ' '. 

6. It implies the wages system. 

III. Problems Raised by Capitalism and the Wages System 

1. The separation of workers from the ownership of raw 
materials and product. 

2. The separation of workers from the ownership of tools 
and machines. 

3. The initiative concerning the control of the conditions 
of work. 

4. The disappearance of personal contact between em- 
ployer and employee. 

5. The organization of labor. 

6. The exploitation of labor. 

7. The accentuation of industrial strife. 



CAPITALISM AND THE WAGES SYSTEM 87 

IV. Some Solutions Proposed to Some of the Problems 
Raised by Capitalism 

1. Unionism (2) 611-614. 

2. Socialism (2) 614-616. 

3. Syndicalism (2) 616-617. 

4. Industrial democracy (2) 609-611. 

5. Productive co-operation (2) 606-608. 

6. Industrial management. 

7. Profit-sharing. 

8. Government control through legislation and admin- 
istration. 

V. Divergence of Opinion as to the Future op Capitalism 

1. The position of the economic conservative. 

2. The position of the economic radical. 

3. The position of the economic liberal or reformer. 

References 

(2) Marshall, L. C. Readings in Industrial Society, Sees. 63, 

64, 67, 68, 240, 242-245, 314. 
' '^ Farvlton, W. H., Current Economic Problems, Sees. 28, 

32-34. 



88 ELEMENTS OF ECONOMICS 



CHAPTER XXIV— THE FACTORY SYSTEM 

I. The Decline or the Handicrafts (2) 640-646 

II. The Survival of the Domestic System in the Modern 
Sweat-Shop (2) 662-663 

III. Nature of the Factory System 

Distinction between the factory system and its predeces- 
sors, the guild and the domestic systems, in the following 
particulars : 

1. Ownership of raw material. 

2. Ownership of tools and machinery. 

3. Ownership of the work place. 

4. Control over the labor power. 

5. Work of superintendence and management. 

6. Control of the marketing. 

IV. Factors Influencing the Establishment of the Fac- 
tory Sy'STEM 

1. Character of the new machinery. 

2. Nature of the new power. 

3. Necessity of large capital. 

4. Necessity of a large numl)cr of congregated lal)orers, 
using division of labor. 

V. Some Problems Accentuated by the Factory System 

1. The problem of controlling the conditions of labor. 

2. The problem of Avoinen in industry. 

3. The problem of urban conditions of life (2) 668-682. 

a. The factory system as one of the factors account- 
ing for the phenomenal growth of cities. 

b. Evils in living under conditions of urban conges- 
tion. 

e. Proposed remedies. 

References 

(2) Marshall, L. C, lie(nli)if/s in Industnal Socichf, Sees. 252, 
257, 259-261. 

(4) Hamilton, AV. H., Cnrrcnt Economic Problems, Sec. 2!). 

(5) Hobson, J. A., Evolution of Capitalism, pp. 54-65. 



MACHINE INDUSTRY 89 



CHAPTER XXV— MACHINE INDUSTRY AND SOME 
EVILS IN THE MACHINE PROCESS 

I. The New Technology (2) 423-426 

II. Some Characteristics of Machine Industry (2) 426- 
429; (4) 60-62 

III. The Superior Productivity of the Machine Process 
(2) 429-430 

IV. Types of Industry Best Adapted to the Machine Pro- 
cess (2) 434-436 

V. Some Distinctive Results of the Machine Industry 

1. Standardization, of product (2) 436-438. 

2. Promotion of impersonality (2) 439-440. 

3. Introduction of a new strain in industry resulting in 
intensified fatigue (2) 440-442; 554-555. This is 
due to 

a. Overtime. 

b. Speeding up of machinery. 

c. Monotony of experience. 

d. Domination of mechanical rhythm over natural 
rhythm. 

e. Noise of machinery. 

VI. The Shorter Working Day as a Remedy for the Evils 
IN the Machine Process (2) 556-558. 

References 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 157- 
160, 162-169, 216-218, 312-313, 333-334. 

(4) Hamilton, W. H., Current Economic Problems, Sees. 30, 52. 

(5) Biicher, Karl, Industrial Evolution, Chs. 7, 8. 

(6) Hobson, J. A., Evolution of Modern Capitalism, Ch. 13. 

(7) Veblen, T., Theory of Business Enterprise, Ch. 2. 



90 ELEMENTS OP ECONOMICS 



CHAPTER XXVI— THE ECONOMIC TRANSFORMATION 
OF THE HOME 

I. The Economic Character of the Home Under the Do- 
mestic System 

II. The Decadence of the Old Type Home 
1. Changes effected by industrialism. 

III. The Resulting Economic Dependence of Women 

IV. The Advent of Women into Business and Industry 

1. Reasons. 

2. Growth in the relative number of wage-earning women 
in the United States. 

3. Growth in the number of occupations open to women. 

V. The New Economic Status of Women Involving 

1. Greater freedom of economic opportunity for women. 

2. Recognition of the professional character of home- 
keeping — the work of the married woman. 

3. Valuation of the productive services of the home- 
keeper. 

4. Improvement in woman 's relation to income and prop- 
erty. 

VI. Problems Raised by the Advent of Women into In- 
dustry 

References 

(4) Hamilton, W. H., Current Economic ProMems, Sec. 31. 

(5) Carlton, F. T., History and Problems of Organized Labor, 
Ch. XIV. 

(6) Goodsell, Willystine, The Family as a Social and Educa- 
tional Institution. 

(7) Spencer, Anna G., Woman's Share in Social Culture, Chs. 
I, VIII. 



NATURE OP LABOR ORGANIZATIONS 91 



Part VIII — Labor Problems 



CHAPTER XXVII— THE NATURE OF LABOR ORGAN- 
IZATIONS 

I. The Historical Basis of Unionism (4) 581-582 

II. Structural Classification of Labor Organizations 

1. As to membership (1) 444, 

a. Trade union. 

1. Local. 

2. National. 

b. Industrial union, 

1. Local. 

2, National. 

c. Labor union. 

2. As to federation (1) 444-445. 

a. The city federation. 

b. The state federation of labor. 

c. The American Federation of Labor (3) 668-671. 

d. Industrial Workers of the World (3) 700-704. 

III. Functional Classification of Labor Organizations 
(4) 584-588 

1. Business unionism. 

2. Uplift unionism. 

3. Revolutionary unionism. 

4. Predatory unionism, 

IV. The Economic Justification of Labor Organizations 

1. The employer's point of view (4) 596-600. 

2. The laborer's point of view (1) 445-446; (4) 590-594. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXIII, pp. 444-446. 

(3) Marshall, Wright, and Field, Materials for the Study of 
Elementary Economics, Sees. 192-194, 203. 

(4) Hamilton, W. H., Current Economic Problems, Sees. 284, 
286, 288, 290, 291. 



92 ELEMENTS OF ECONOMICS 



CHAPTER XXVIII— LABOR UNION POLICIES 

I. The Policy of Collective Bargaining (4) 600-602 ; 
605-608; (5) 116-122 

1. The Aveakness of individual l:)argainiiio'. 

2. The streno'tli of eolleetive bargaining. 

II. The Policy of the Closed Shop (1) 448-449; (4) 608- 
614; (5) 122-128 

1. Nature of an open shop. 

2. Kinds of closed shops. 

a. The anti-union shop. 

1). The closed shop with open union. 

c. The closed shop with closed union. 

3. Grounds of justification of the closed-shop policy. 

4. Objections to the closed-shop policy. 

III. The Policy of Restricting Output (1) 449-451; 
(5) 128-137 

1. The nature of output restriction as practiced by 

a. Employers. 

b. Labor organizations. 

2. The labor unionists' justification of the restriction of 
output. 

a. The "lump-of-work" argument. 

(1) Statement of the argument. 

(2) Criticism of the argument. 

b. The ' ' health-of-the-worker ' ' argument. 

IV. The Policy of Regulating Hours (5) 137-143 

1. The purpose in a shorter working day. 

2. The economic possibility of a shorter working day. 

a. Effect in industries -where, alertness and skill are 
required. 

b. Effect in industries where the pace is set by ma- 
chines. 

3. Relation of the shorter working day to wages. 



LABOR UNION POLICIES 93 

V. The Policy of Controlling the Introduction of Ma- 
chinery (5) 113-116 

1. Historical attitude of labor to the introduction of ma- 
chinery (3) 693-694. 

2. The "short time" effects of the introduction of ma- 
chinery. 

3. The "long time" effects of the introduction of ma- 
chinery. 

4. The difficulties of the period of readjustment following 
the introduction of new labor saving machinery, 

VI. The Policy of Promoting Class Solidarity 

1. Economic. 

2. Political. 

3. Social (1) 451-452. 

Eeferences 

(1) Ely, R. T., Outlines of Economics, Ch. XXII, pp. 447-452. 

(3) Marshall, Wright, and Field, Materials for the Study of 
Elementary Economics, Sec. 199. 

(4) Hamilton, W. H., Current Economic Problems, Sees. 292, 
294, 295, 296. 

(5) Carlton, F. T., History and Problems of Organized Labor, 
pp. 113-143. 

(6) Groat, G. G., Organized Labor in America, Chs. XVI, 
XVII. 

(7) Commons, J. R., Labor and Administration, Ch. VII. 



94 ELEMENTS OF ECONOMICS 



CHAPTER XXIX— CLASS DIFFERENTIATION AND IN- 
DUSTRIAL CONFLICT 

I. Inevitableness of Class Differentiation 

11. The Impersonal Conditions Furnishing a Basis of 
Class Differentiation (2) 617-619 

1. Type of occupation. 

2. Wealth and income. 

3. Birth. 

III. The Nature of Socio-Economic Classes 

IV. Sources of Industrial Conflict (2) 621-622 

1. Psychic sources. 

2. External sources. 

V. Labor's Means of Waging Industrial Conflict 

1. The strike (1) 452-454; (4) 614-617. 

a. Meaning. A strike is a preconcerted cessation of 
work on the part of a group of employees for the 
purpose of enforcing certain demands concerning 
the conditions of their continued employment. 

b. Classification of strikes. 

(1) Direct. 

(2) Sympathetic. 

(3) General or class (4) 644-646. 

c. Objects of strikes. 

d. Causes of violence in strikes. 

e. Efficacy of strikes. 

2. Picketing. 

3. The boycott (4) 618-620. 

a. Meaning. 

b. Forms of the boycott. 

(1) Simple. 

(2) Compound or sympathetic. 

c. Means of conducting boycotts. 

d. Conditions for success. 

4. Sabotage (4) 637-641. 



INDUSTRIAL CONFLICT 95 

VI. Employers' Means of Waging Industrial Conflict 

1. The lock-out. 

2. Strike-breaking by scabs (4) 617-618; 622-624. 

3. The black list. 

4. The injunction, 

VII. Reasons for the Growing Interest of the Public in 
Industrial Conflict 

VIII. The Legal Status of Industrial Conflict Weapons 

1. The restraining influence of certain legal doctrines. 

a. The common law doctrine of conspiracy. 

b. The statute law doctrine of restraint of trade 
(4) 634-636. 

2. Court decisions concerning the legality of 

a. The strike. 

b. Picketing. 

c. The boycott. 

d. Sabotage. 

e. The lockout. 

3. Legal status of the injunction. 

References 

(1) Ely, R. T., Outli7ies of Economics, Ch. XXII, pp. 452-457. 

(2) Marshall, L. C, Readings in Industrial Society, Sees 246- 
251. 

(3) Marshall, Wright, and Field, Wlaterials for the Study of 
Elementary Economics, Sees. 204-205. 

(4) Hamilton, W. H., Current Economic Problems, Sees 297- 
304, 310-312, 315, 334-335. 



95 ELEMENTS OF ECONOMICS 



CHAPTER XXX— INDUSTRIAL PEACE 

I. Agencies for Settling Industrial Disputes (5) 125-126 

1. Mediation or conciliation, which implies the bringing 
together of the parties to an industrial dispute by a 
third party for peaceable settlement of the dispute by 
discussion and argument. The mediator is a confiden- 
tial go-between. 

2. Voluntary arbitration which means the agreement by 
the parties to a dispute to submit the controversy to a 
third party by whose decision they promise to abide. 
The complete procedure in arbitration consists of the 
following steps : 

a. Submission of the case. 

b. Investigation. 

c. Pefraining from strike or lockout during the in- 
vestigation. 

d. Drawing up an award. 

e. Enforcement of the award (5) 126. 

3. Compulsory investigation, which means that an inves- 
tigation is made by a board created by the state, with 
or without the consent of one or both parties to the 
dispute. 

4. Compulsory arbitration, which means that the parties 
to a dispute are obliged to submit their case to a third 
party for decision (4) 574-576. 

II. Some Governmental Agencies for Settling Industrial 
Disputes 

1. The Newlands Act of 1918 su])ersedin^' tlic Erdiiian 
Act of 1898— U. S. legislation (5) 136. 

2. The Canadian Industrial Disjiutcs [iivesligation Act 
of 1907 (1) 459; (6) 250-25:]. 

3. Compulsory Arbitration Acts of Australia and New 
Zealand (1) 459-460; (4) 571-573; (6) 253-261. 

4. War Laboi- lioard. 



INDUSTRIAL PEACE 97 

III. Agencies for Preventing Industrial Conflict 

1. Trade agreements (6) 243-250. 

2. Profit-sharing (1) 461-463. 

a. The attitude of employers. 

b. The attitude of employees. 

3. Producers' cooperation (1) 464-468; (2) 606-608. 

4. Welfare work for employees. 

5. Industrial democracy (1) 463-464; (2) 609-611. 

6. Industrial management. 

Eeferences 

(1) Ely, R. T., Outlines of Economics, Ch. XXII, pp. 457-469. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 240, 
242. 

(4) Hamilton, W, H., Current Ecoiiomic Problems, Sees. 281- 
282. 

(5) Commons, J. R. & Andrews, J. B., Principles of Labor Leg- 
islation, Ch. Ill, pp. 24-160. 

(6) Carlton, F. T., History and Problems of Organized Labor, 
Ch. IX. 



98 ELEMENTS OF ECONOMICS 



CHAPTER XXXI— LABOR LEGISLATION 

I. The Philosophy of Labor Legislation (1) 471-472; 
488-491 

II. Legal Obstacles That Have Been Met in the United 
States in the Enactment of Protective Legislation 
FOR Labor (5) 263-267 

III. Legislation Concerning the Hours of Work 

1. Regulations concerning the hours of 

a. Children. 

b. Women, 
c; Men. 

2. Provisions of rest periods. 

3. The economic possibility of the shorter working day. 

4. The justification of the shorter working day. 

IV. Safety and Health Legislation (1) 484-486 

1. The need of such legislation. 

2. The forms of such legislation. 

V. Child Labor Legislation (1) 476-479; (2) 558-560. 

1. The problem of child labor. 

a. Prohibition of child labor. 

b. Guidance of child's activities. 

2. Provisions of child labor laws. 

3. Effect of Supreme Court Decision of 1918. 

VI. Minimum Wage Legislation (1) 480-484; (2) 592-594; 
(3) 723-733 

1. Arguments for a legal minimum wage (4) 558-559. 

2. Arguments against a legal minimum wage (4) 564- 
566. 

3. The extent and tj'pcs of minimum wage legislation 
(4) 562-564. 

VII. Legislation Concerning Employers' Liability 
(1) 486-488; (3) 747-756; (4) 538-543 
1. Employers' liability under the common law. 



LABOR LEGISLATION 99 

2. Procedure in recovering damages. 

3. Common law defenses (2) 574-577. 

a. Contributor}^ negligence. 

b. Fellow servant rule. 

c. Assumption of risk. 

4. Statutory amendments of employers' liability acts 
(2) 597-599. 

VIII. Workmen's Compensation Legislation 

IX. Administrative Agencies 

1. The Wisconsin Industrial Commission. 

a. Organization, 

b. Functions. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXIII. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 219, 
227, 232, 234. 

(3) Marshall, Wright & Field, Materials for the Study of Ele- 
mentary Economics, Sees. 211, 214, 

(4) Hamilton, W. H., Current Economic Problems, Sees. 264- 
266, 275, 277, 278. . 

(5) Carlton, F. T., History and Problems of Organized Labor, 
Ch. X, 



iOO ELEMENTS OF ECONOMICS 



Part IX — Population Problems 

CHAPTER XXXII— THE PROBLEMS OF A GROWING 
POPULATION 

I. The Problem of Numbers Arising Through Natural In- 
crease (2) 601-603 

1. Statement of the Malthusian theory of population: 
Population has a tendency to outrun the food supply 
and is only held back by the operation of certain posi- 
tive cheeks which result in a high death rate, and cer- 
tain preventive checks, which result in a low birth rate 
(1) 43^437; (3) 109-111; (4) 457-459. 

2. Criticism of the Malthusian theory of population 
(4) 462-463. - 

. 3. Present factors responsible for a falling birth rate 
(4) 463-467. 

II. The Problem of Numbers Arising Through Immigration 
(1) 68-74; (2) 603-604 

1. Factors creating the immigration problem. 

a. The greatly increased volume of immigration piior 
to the war (3) 137; (4) 468-472. 

b. The changing type of immigrant (3) 138-140. 

c. The urban preference and segregation of the im- 
migrant. 

d. The disappearance of free land. 

2. The economic value of the immigrant (4) 474-477. 

3. The menace of the immigrant (4) 478-482, 484-488, 
499-501. 

a. Economic. 

b. Social. 

c. Political. 



POPULATION PROBLEMS 101 

4. The restriction of immigration through a literacy test 
(4) 493-496. 

a. Nature of the test: the ability to read some lan- 
guage. 

b. Arguments in favor of the literacy test. 

c. Arguments against the literacy test. 

d. Provisions of the immigration act of 1916. 

Eeferences 

(1) Ely, R. T., Outlines of Economics, pp. 68-74, 434-437. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 237- 
238. 

(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 27, 33, 34, 36. 

(4) Hamilton, W. H., Current Economic Problems, pp. 449- 
451 and Sees. 225, 227-230, 232-233, 235-236, 238-239, 
244, 246. 



102 ELEMENTS OF ECONOMICS 



Part X — The Problem of Crises 



CHAPTER XXXIII— CRISES AND THE BUSINESS 

CYCLE 

I. Nature and Kinds of Crises (4) 238-239 

1. Financial crisis — the culmination of an upward price 
movement, and a sudden fall of prices which greatly 
impairs or destroys the credit of many. The crisis 
may develop into a financial panic, consisting in a wild 
frightened scramble on the part of people to meet 
their financial obligations in a time of scarce credit. 

2. Industrial crisis (depression) — the period of hard 
times usually following a financial panic, characterized 
by business inactivity, slowing up or shutting down of 
production, unemployment. 

II. Periodicity of Crises 

"Crises are frequently recurring phenomena of current 
economic life." Attempts have been made to prove that 
they recur approximately every ten years. Leading crises 
in American economic life occurred in 1817-18, 1825, 
1837-39, 1857, 1873, 1884, 1893, 1903, 1907, 1914. 

III. The Course of a Business Cycle (2) 492-494; (4) 208- 
216 ; 225^232 

1. * The period of prosperity — expanding credit, great com- 

mercial activity. 

2. The period of the crisis. 

3. The period of depression. 

4. The recovery. 

IV. Some Theories Explaining Crises (2) 489-492 

1. The over-production theory (4) 242-243. 

2. The under-consumption theory (1) 333. 



CRISES AND THE BUSINESS CYCLE 103 

3. Jevons' sun-spots theory (4) 243-244. 

4. The rain-fall theory (4) 245-246. 

5. The lagging interest rate theory (4) 247-249, 

6. The capitalization theory (4) 246-247. 

\^. Some Remedies to Mitigate the Evils oe Crises (4) 196 

1. Elasticity of credit (4) 253-256. 

2. Elasticity of currency (4) 257-259. 

3. Regulation of speculation. 

4. Stability in tariff policy. 

5. Provision for employment on public works. 

6. Integration of industry (1) 336. 

References 

(1) Ely, R. T., Outlines of Economics, pp. 333-336. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 185- 
187, 189. 

(4) Hamilton, W. H., Current Economic Problems, Sees. 100- 
101, 106-108, 116, 119-123, 126-128. 



104 ELEMENTS OF ECONOMICS 



Part XI — Transportation Problems 



CHAPTER XXXIV— TRANSPORTATION PROBLEMS 

I. The Development op Transportation in the United 
States (1) 90-93 

1. The turnpike period. 

2. The river and canal period. 

3. The railway period. 

a. The stage of experimentation. 

b. The stage of linear consolidation. 

c. The stage of severe competition. 

d. The stage of combination and regulation. 

II. Bases of Public Interest in the Railway Industry 

1. The peculiar dependence of public welfare upon the 
railway industry, it being, a natural monopoly. 

2. The exercise of the right of eminent domain for the 
railways. 

3. The subsidization of the railways. 

a. Kinds. 

b. Reasons. 

4. The protection of railway investment. 

III. Some Economic Characteristics op the Railway In- 
dustry (4) 348-351 

1. The relative importance of capital (1) 558-560. 

2. The importance of the principle of decreasing costs.. 

3. The importance of the principle of joint costs. 

4. A natural monopoly. 

IV. Kinds of Railway Service 

1. The freight service (5) 147-180. 

2. The passenger service (5) 181-205. 

5. The express service (5) 206-222. 
4. Th« mail service (5) 223-239. 



TRANSPORTATION PROBLEMS 105 

V. Classification op Railway Expenditures 

1. Operating expenses. 

a. Maintenance of way and structure. 

b. Maintenance of equipment. 

c. Traffic. 

d. Transportation — rail line. 

e. Transportation— water line. 

f. Miscellaneous operations. 

g. General. 

h. Transportation for investment — credit. 

2. Fixed expenses. 

Under fixed expenses are included such payments as 
the interest on funded and floating debts, rentals, 
taxes, various sinking fund reserves, etc. 

VI, Sources of Railway Revenues 

1. Operating revenues. 

2. Non-operating income. 

VII. Theory of Freight Rates and Passenger Fares 

1. The principle of basing charges upon the cost of the 
service (3) 286-288. 

a. Various meanings of "cost of service". 

(1) It may mean all expenses properly charge- 
able against the service including both 
operating expenses and fixed charges. 

(2) It may mean only the expense incurred in 
using the plant to perform a given service, 
thus excluding fixed charges. 

(3) It may mean merely the additional expense 
of performing the given service, assuming 
the plant already to be in operation. 

b. Difficulties in the determination of the cost of 
the service (4) 374-376. Most railway ex- 
penditures are "joint costs". 

c. Progress made in the determination of the cost 
of the service through accurate system of cost 
accounting. 

d. Some factors to consider in the determination 
of the cost of the service. 



106 ELEMENTS OF ECONOMICS 

(1) Physical valuation of railway property as 
a basis for determining the general level 
of rates (1) 565-567; (4) 380-381; 382- 
386. 

(2) Distance or length of the haul as element 
in the determination of relative rates (1) 
567-571. It is not to be assumed that cost 
of service is directly proportional to the 
distance a commodity or person is carried. 

(3) Weight of freight consignment. But cost 
of service is not directly proportional to 
the weight of the commodity. 

(4) Density of traffic as an element in the de- 
termination of relative rates. 

2. The principle of ''charging what the traffic will 
bear". This has been the great guiding considera- 
tion in the past in the rate making policy of our 
American railway managers. Roughly it has been 
measured by the 

a. Value of the service. 

b. Value of the commodity. 

3. The principle of the "developmental" rate. 

VIII. Practical Aspects of Eate Making 

1. The establishment of the freight classification 
(4) 370-372. 

2. The establishment of the freight tariff (4) 370-372. 

3. Some factors affecting the determination of freight 
rates. 

a. The competition of other roads and routes. 

b. The competition among industries and among 
markets (2) 907-911; (4) 372-374. 

What the shipper can afford to pay so that his 
industry may develop and the traffic of the car- 
rier increase is of great importance. The gen- 
eral freight agent, or freight traffic manager, 
or whoever is ultimately charged with the re- 
sporsibility of establishing the rate, must be an 
expert in formulating a judgment concerning 
what "charges the traffic will bear." 



TRANSPORTATION PROBLEMS 107 

c. The carrier's need of revenue to meet costs. 

d. The regulations of government. 

4. Kate systems in vogue in the United States. 

a. In the territory north of the Potomac and Ohio 
rivers and east of the Mississippi — the trunk 
line rate system (5) 359-360. 

b. In the territory south of the Potomac and Ohio 
rivers and east of the Mississippi — the basing 
point system of rates (1) 570; (5) 360-361. 

c. In the territory ''west of Lake Michigan and of 
the Mississippi river south of Wisconsin"- — ^the 
western rate system (5) 361-362. 

d. The blanket system of rates in use for transcon- 
tinental traffic (1) 570; (5) 362-363. 

e. Import and export rates (1) 570-571; (5) 363. 

IX. Some Abuses Arising in Railvs^ay Practice (4) 355- 
356 

Abuses appeared early in the policy of the railways 
towards shippers in matters of rates and service. In the 
correction of these abuses the railway problem of the 
past three decades has lain. The chief forms of dis- 
crimination practiced by the railways were 

1. Discrimination between commodities (4) 357-361. 

2. Discrimination between places, the "long and short 
haul" problem. 

3. Discrimination between individuals, the problem of 
rebating (4) 361-364. 

X. The Problem of Railway Regulation 

1. The breakdown of competition (1) 560-563; (2) 
741-743; (4) 352-354. 

2. The need of regulation (4) 364-365. 

3. Legislation establishing regulation (1) 574-575. 

a. The Interstate Commerce Act of 1887 (3) 274- 
285; (4) 365-366. 

b. The Elkins Act of 1903 (4) 366-367. 

c. The Hepburn Act of 1906 (4) 367-369. 

d. The Mann-Elkins Act of 1910 (4) 369-370. 

e. The Clayton Act of 1914. 



108 ELEMENTS OF ECONOMICS 

4. Governmental organizations for regulation of rail- 
ways. 

a. The Interstate Commerce Commission. 

b. State public utility commissions (3) 291-299. 

XI. The Railway Situation in the United States Shortly 
Prior to Government Operation 

XII. The Experience op the Federal Railway Adminis- 
tration 

XIII. The Problem of Government Ownership of the Rail- 
ways (1) 571-572; (4) 388-394 

XIV. Scope of the Field of Public Utilities 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXVII. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 291, 
342, 343. 

(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 76, 79-81, 83. 

(4) Hamilton, W. H., Current Economic Problems, Sees. 175- 
198. 

(5) Johnson and Van Metre, Principles of Railroad Transpor- 
tation. 



LIFE INSURANCE 109 



Part XII — Insurance Problems 

CHAPTER XXXV— LIFE INSURANCE 

I. The Causes of Economic Insecurity (4) 515-522 

II. The Nature op Insurance as a Remedy for Insecurity 
(1) 577-578; (2) 499-501; (4) 522-523 

1. Definition. Insurance is a business whose chief func- 
tion is the assumption of risk by distributing among 
many the losses sustained at any given time by a 
few. 

"Insurance is an agreement to pay a certain sum 
of money to compensate for the loss resulting from 
some contingent event, in consideration of an im- 
mediate cash payment or a series of payments." 

(5) 1. 

2. Reasons for the productive character of insurance. 

3. Distinction between insurance and gambling. 

4. The scientific basis of insurance, 
a. The law of probabilities. 

III. The Chief Forms of Insurance 

1. Life. 

2. Fire. 

3. Casualty. 

4. Social. ♦ 

IV. Forms of Insurance Organization (1) 580-581 

1. Stock companies. 

2. Mutual companies. 

a. Assessment companies. 

3. Mixed companies. 



110 ELEMENTS OF ECONOMICS 

V. Classification of Insurance Policies (1) 582-583 

An insurance policy is a written contract between the 
insurer and the insured, assuming many different forms, 
^ but whatever the details of the contract may be, con- 

taining a statement concerning the contingency on which 
the amount of the policy will be paid, stipulations con- 
cerning the premium, and the name of the beneficiary. 
Policies may be classified 

1. According to maturity. 

a. Ordinary life. 

b. Limited payment life. 

c. Term. 

d. Endowment (1) 584. 

2. According to participation in the earnings of the 
company. 

a. Participating. 

b. Non-participating. 

3. According to premium plan. 

a. Natural premium or step rate plan. Under the 
natural premium plan the insured pays each year 
the cost of the deaths for that year proportioned 
according to the probability of dying at the age 
of the insured. It means an annually increas- 
ing premium. 

b. Level premium plan, the same annual payment 
being made throughout the life of the policy. 
(1) Necessity of maintaining a reserve (1) 583. 

VI. Sources of Surplus in the Insurance Business 

(1) 583-584 

VII. Possibility op State Insurance (1) 585-586 
1. The Wisconsin experiment. 

VIII. Insurance Program of the U. S. Government in Pro- 
viding FOR ITS Soldiers and Sailors 
The Military and Naval Insurance Act of October 6, 
1917 contains the following provisions: 
1. Family allowances are to be paid by the Govern- 
ment, conditioned upon a compulsory allotment of 
his pay by the soldier or sailor for the support of 
his family. 



LIFE INSURANCE 111 

2. Compulsory saving of his pay by the soldier or sailor 
is provided for, when there is no allotment, of pay 
for the support of dependents. 

3. Compensation for death or disability caused by in- 
. jury or disease incurred in the service will be made 

by the Government. 

4. Life insurance at low cost is furnished the soldier 
or sailor, at his option, by the Government. 

IX. The Need and Nature op State Regulation of Insur- 
ance (1) 586-587 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXVIII. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 135, 
191. 

(5) Gephart, W. F., Principles of Insurance. 



112 ELEMENTS OF ECONOMICS 



CHAPTER XXXVI— SOCIAL INSURANCE 

I. The Nature of Social Insurance as a Remedy for the 
Economic Insecurity of Workers (2) 532-534; 588-589 

II. Social Insurance Against Industrial Accidents 
(1) 588-591 

1. The hazards of modern industry (2) 549-550. 

2. The extent of industrial accidents (2) 550-552; 
(4) 534-537. 

3. Social loss through industrial accidents (2) 552-553. 

4. The incidence of industrial accidents (4) 540-542. 

5. The inadequacy of employers' liability in providing 
compensation (4) 538-540; 542-543. 

a. Wastefulness of law procedure. 

b. Rules of employers' liability (2) 574-577. 

6. Workmen's compensation legislation as insurance 
against industrial accidents. 

a. The scope of the laws. 

b. The scale of compensation. 

c. The administration of the laws. 

III. Social Insurance Against Sickness (1) 591-592 

1. The need for health insurance (2) 553-554; (4) 543- 
544. 

2. Systems of compulsory health insurance (4) 544-545. 

a. German. 

b. British (4) 546-548. 

IV. Social Insurance Against Old Age and Invalidity 
(1) 592 

1. The system of old age pensions (4) 548-550. 

2. The system of compulsory insurance. 

V. Social Insurance Against Unemployment (1) 592-593 

1. The problem of unemployment (2) 536-537; 539-540. 

2. The amount of unemployment (2) 544-549. 

3. The causes of unemployment (4) 524-526. 

a. Personal (2) 538. 

b. Changes in industry (2) 541-542. 



SOCIAL INSURANCE 113 

c. Periodic fluctuations in industry. 

d. Necessity of a supply of reserve labor to meet the 
greatest demands in the years of prosperity. 

4. Proposed remedies for unemployment. 

a. Labor exchanges (2) 579-581: (4) 526-528. 

b. Government employment (2) 581-582; (4) 528- 
530. 

c. Kegularization of industry (2) 582-586. 

d. Compulsory unemployment insurance (2) 586- 
587; (4) 531-534. 

References 

(1) Ely, E. T., Outlines of Economics, pp. 587-594. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 203, 
205, 207-209, 211-215, 227, 229-231. 

(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 215-216. 

(4) Hamilton, W. H., Current Economic Problems, Sees. 254- 
270. 

s 



214 ELEMENTS OF ECONOMICS 



Part XIII — Agricultural Problems 



CHAPTER XXXVII— SOME PROBLEMS OF AGRICUL- 
TURAL ECONOMICS 

I. The Problem of the Size of Farms 

1. Statistical data concerning the size of farms in the 
United States in 1910 (1) 596-599. 

2. Forces affecting the size of farms and the intensivity 
of their cultivation (1) 600-601. 

3. The prospect of more intensive cultivation of the land 
in the United States. 

II. The Problem of Tenancy 

1. Statistical data concerning the growth of tenancy in 
the United States (1) 603-604. 

2. Explanations for the growth of tenancy in the United 
States (1) 603-605. 

3. Economic advantages of tenancy in an old country 
where land values are high and fluctuating (1) 615- 
617. 

4. Advantages of land ownership (1) 617. 

III. The Problem of Farm Credit 

1. The need of agricultural credit in the United States 
(1) 609-611. 

2. The European solution of the problem of farm credit 
through the establishment of mortgage land banks and 
credit associations (1) 611-613. 

3. The Federal Farm Loan Act of July, 1916 (1) 613- 
615. 

a. Organization of the federal land banks. 

b. Functions of the federal land banks. 



AGRICULTURAL PROBLEMS H^ 

IV. The Problem of Marketing (1) 618-622 

1. The difficulties in securing cooperation among Amer- 
ican farmers. 

2. The forms and growth of sellers' cooperation among 
American farmers. 

3. Economic advantages of cooperative selling. 

4. Governmental regulation of marketing. 

Eeperence 
(1) Ely, R. T., Outlines of Economics, Ch. XXIX. 



116 ELEMENTS OF ECONOMICS 



Part XIV — Problems of Speculation 



CHAPTER XXXVIII— THE PROBLEM OF ORGANIZED 
SPECULATION 

I. The Nature of Speculation (2) 474-475; 501-502 

11. The Chief Forms op Speculation 

1. Commercial (2) 475-478. 

2. Industrial (2) 479^80. 

III. Institutions for Organized Speculation (4) 176-178 

1. The board of trade (2) 260-265. 

2. The stock exchange (2) 354-355. 

The stock exchange provides facilities for three kinds 
of transactions: 

a. Investment (2) 266. 

b. Speculation (4) 166. 
e. Gambling. 

IV. Analysis of Some of the Leading Items on the Finan- 
cial Pages op Newspapers and Financial Journals 

V. Some Commonly Used Terms in Organized Speculation 

1. A Bull on the stock exchange or board of trade is 
one who buys in the expectation that prices will rise, 
or in order to effect such a rise, hoping later to sell 
at a still higher price. The bull's habit is to "toss 
up". 

2. A Bear on the stock exchange or board of trade is 
one who sells securities or commodities for future 
delivery, in the expectation that prices will fall and 

V that he will be able to buy before the date of deliv- 
ery at a lower price than the price at which he sold. 
The bear's habit is to "pull down". 



SPECULATION 117 

3. A Lamb is an outsider patronizing the exchange who 
has no real financial information or expert knowledge 
concerning the operations of the exchange. Some- 
times the "lambs" make a "haul"; frequently they 
are "fleeced". 

4. Long of Stock means that a person owns a given 
security. Bulls who buy for a rise in the market 
are "long of stock". 

5. Short of Stock means that a person is without stock 
which he has sold for future delivery. Bears who 
sell in the expectation of a fall in the market are 
"short of stock". 

6. Selling Short means to sell securities or produce 
for future delivery that one does not own at present 
in the expectation that prices will fall. 

7. Shorts Rushing to Cover means that persons who 
have sold expecting a fall in the market find that 
prices are actually going up, and so they hurry to 
buy the securities or produce they have agreed to de- 
liver, without taking any further chances. 

8. Squeezing the Bear implies that those who have 
securities or produce that the bear needs in order to 
live up to his sale contract, extract from him as much 
as possible for them. 

9. A Corner exists, when the bulls have bought up the 
available supply of securities or produce and can 
compel the bears to buy them from them at whatever 
price the bulls dictate. 

10. Futures are securities or produce bought or sold 
for future delivery. 

11. May Wheat is wheat bought and sold for delivery 
in the month of May. 

12. Spot Price is the actual market price for goods de- 
livered at once. 

13. Opening Price is the price of any security or of pro- 
duce prevailing at the opening of business of the 
stock exchange or board of trade. 

14. Closing Price is the price of anj^ security or of pro- 
duce, prevailing at the close of business of the stock 
exchange or board of trade on any given day. 



118 ELEMENTS OF ECONOMICS 

15. "Hedging may be defined as the practice of maldng 
two contracts at about the same time of an opposite, 
though corresponding nature — the one in the trade 
market, and the other in the speculative market." 
(2) 502-507. 

16. Dealing on Margin means speculating upon the 
basis of cash deposited with a stock broker to guar- 
antee him against possible loss. The margin repre- 
sents a partial payment, sufficiently large however 
to finance the transaction. A common margin is 10 
points or 10%. 

17. Put is an option in the form of a contract entitling 
the option-holder to sell stock to the taker of the op- 
tion-money at a fixed price on a given date. More 
briefly, a put is the right to sell a person a certain 
number of shares of stock at a certain price. 

18. Call is an option in the form of a contract entitling 
the option holder to buy stock from the taker of the 
option-money at a fixed price on a given date. More 
briefly, a call is the right to buy from a person a cer- 
tain number of shares of stock at a certain price. 

VI. The Functions of Speculation 

1. The equalization of price fluctuations "between dif- 
ferent points of time and between different markets ' ' 
(1) 624. 

2. The transfer of risks to a "body of professional risk 
takers" (1) 624. 

VII. Evils in Speculation 

1. Occasional accentuation of price fluctuations. 

2. The promotion of gambling. 

a. Distinction between speculation and gambling 
(4) 166-167. 

b. Similarity of speculation and gambling (4) 167- 
168. 

c. Evils in gambling. 

VIII. The Regulation of Organized Speculation (3) 391- 
396 



SPECULATION HQ 



References 



(1) Ely, R. T., Outlines of Economics, pp. 622-625. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 97, 
99, 133, 134, 178-180, 192, 193. 

(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, See. 106. 

(4) Hamilton, W. H., Current Economic Problems, Sees. 82-88, 



120 ELEMENTS OP ECONOMICS 



Part XV — Problems of Public Finance 



CHAPTER XXXIX— PUBLIC EXPENDITURES 

I. Nature op Public Finance (1) 643 

''Public finance deals with the revenues of government, 
with their expenditure, and their administration." 

II. Distinctive Characteristics of a Public in Contrast 
WITH a Private Economy (1) 646-648 

1. Relative elasticity of public revenues and relative in- 
elasticity of public expenditures. 

2. Perpetuity of the state. 

3. Inclusive aim of public expenditures. 

III. The Growth in Public Expenditures (3) 824-828 

1. Absolute and relative amount of public expenditures 
in the United States in 1913 (1) 662. 

2. Reasons for the growth in public expenditures (1) 645, 
650-651. 

3. Proper proportion between the total income of society 
and public expenditures (1) 648-650. 

a. Wagner's rule. 

4. Policies concerning public expenditures (1) 652-654. 

a. The policy of extravagance. 

b. The policy of parsimony. 

c. The policy of frugality. 

d. The policy of economy. 

Good government comes high but it is worth it. 

IV. The Development of Public Expenditures 

1. As to historical sequence — reasons (1) 654-659. 

a. External security. 

b. Internal security. 



PUBLIC EXPENDITURES 121 

c. Promotion of material interests. 

d. Benevolence. 

e. Education. 

f. Labor. 

2. As to regularity and irregularity — reasons (1) 659- 
664. 

Eeferences 

(1) Ely, R. T., Outlines of Economics, Ch. XXXI. 

(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 238, 239. 

(4) Hamilton, W. H., Current Economic Problems, See. 337. 



122 ELEMENTS OP ECONOMICS 



CHAPTER XL— THE SOURCES OF PUBLIC REVENUE 

I. Public Loans 

1. The facts concerning the increasing use of public 
credit as a means of raising funds for governmental 
purposes (1) 666-667. 

2. The justification of resorting to government loans 
(1) 667-671. 

a. To provide for the extraordinary expenditures of 
some emergency such as war. 

b. To provide for public works — "investments on 
capital account." 

3. The amount of the public debt of the leading nations 
of the world, absolutely and in relation to their na- 
tional wealth. 

a. Pre-war indebtedness (3) 841-846. 

b. War indebtedness. 

4. The relation between loans and taxes (1) 668-669. 

II. Public Domain 

1. The historical significance of the public domain as a 
source of revenue (1) 671-673. 

2. The land policy of the United States as to 

a. Agricultural land (1) 673-674. 

b. Forest land (1) 674-675. 

c. Mineral land (1) 675-677. 

d. Water powers. 

III. Public Industries — Public Prices 

1. Classification of public industries as to governmental 
purpose therein (1) 682-684. 

a. Discouragement of consumption. 

b. Regulation. 

c. Public service. 

d. Revenue. 

2. Basis of charges for the products or services of public 
industries (1) 684-687. 



SOURCES OF PUBLIC REVENUE 123 

IV. Fees (1) 689-692 

1. Nature. A fee is a payment required from a person to 
defray in part or whole the expense of a special serv- 
ice rendered him by the government. The service is 
less dominantly commercial than in the case of the 
public price. University fees, court fees, sheriff's fees 
are illustrations. 

2. Advantages of the fee system. 

3. Evils in the fee system. 

4. Remedies for the evils. 

V. Special Assessments (1) 692-694 

1. Natpre. Special assessments are compulsory contribu- 
tions "levied in proportion to the special benefits de- 
rived, to defray the cost of a specific improvement to 
property, undertaken in the public interest" e. g., 
street improvement assessments. 

2. Advantages of a system of special assessments. 

3. Evils in special assessments. 

4. Remedies for the evils. 

VI. Taxation (See Chapter XLI). 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXXII; XXXIII, 

pp. 689-694. 
(3) Marshall, Wright and Field, Materials for the Study of 

Elementary Economics, Sees. 241-244. 



124 ■ ELEMENTS OF ECONOMICS 



CHAPTER XLI— TAXATION 

I, The Importance of Taxation as a Public Question 
Taxation is not only a source of public revenue, but a 
factor in the distribution of wealth, and so the contro- 
versial center of much actual and proposed reform legis- 
lation (4) 690-691. 

II. Nature of Taxation 

A tax is a general compulsory contribution of wealth, 
exacted by public authority according to. some general 
rule, and levied without reference to the special benefits 
which the contributors may derive from the public pur- 
pose for which the revenue is required (1) 690. The 
absence of a quid pro quo distinguishes taxes from public 
prices, fees, and special assessments. 

III. Standards of Justice in Bearing the Burden of Tax- 
ation 

1. The principle of benefits received (1) 698; (4) 697- 
698. 

2. The principle of ability to pay (1) 698-699 ; (4) 698. 

a. Bases of ability to pay (1) 699. 

1. Property. 

2. Income. 

3. Outgo or consumption. 

b. Variations in the ability to bear the burden of 
taxation (1) 699-700. 

(1) Proportional taxation. 

(2) Progressive taxation. 

(3) Regressive taxation. 

(4) Degressive taxation. 

IV. The Shifting and Incidence of Taxes (1) 703-708; 
(4) 699-706 

1. Nature of shifting. Shifting means passing on the 
burden of the tax, e. g., the duty on tea is shifted by 
the importer to the consumer. 

2. Nature of incidence. By the incidence of a tax is 
meant the final location of the burden of the tax. 



TAXATION 125 

V. Criteria of Good Taxes (1) 696-697; (4) 696-697 

1. Uniformity. 

2. Certainty. 

3. Convenience. 

4. Simplicity. 

5. Economj^ ■ 

6. Justice. 

VI. Classification op Taxes in the United States 



1. 


As to the taxing body. 






a. 


Federal. 






b. 


State. 






c. 


Local. 




2. 


As to incidence. 






a. 


Direct taxes. 






b. 


Indirect taxes. 




3. 


As to form. 






a. 


Custom duties. 






b. 


Excise or internal revenue duties. 






c. 


Transaction taxes. 






d. 


Income taxes. 






e. 


Inheritance taxes. 






f. 


Corporation taxes. 






g- 


Business and license taxes. 






h. 


General property tax. 






i. 


Poll taxes. 




As far 


as the unit against which they are 


levied is con- 


cerned it may be helpful to classify the 


various forms 


of taxes as follows : 





VII. Personal Taxes 

1. Poll taxes (1) 734. 

2. Inheritance taxes (1) 723-726; (3) 870-874. 

a. Nature. Most inheritance tax laws contain the 
following provisions : 

(1) The separate legacy rather than the estate 
as a whole is taxed. 

(2) Legacies to relatives in the direct line are 
taxed at a lower rate than legacies to col- 
lateral relatives. 



126 ELEMENTS OF ECONOMICS 

(3) Legacies below a stipulated minimum are 
exempt from taxation. 

(4) Progressive rates of taxation are imposed. 

b. Importance for state and federal revenue. 

c. Merits of the inheritance tax. 

d. Problems raised by inheritance taxation in the 
U. S. 

3. Income taxes (3) 874-880. 

a. Nature of the income tax. 

b. History of federal income taxation (1) 710-712. 

c. Provisions of the federal income tax law as 
amended in 1918. 

d. Importance for state and federal revenue 
(1) 723. 

e. Merits of the income tax (1) 721-722. 

f. Difficulties in the income tax (1) 721. 

VIII. Expenditure or Consumption Taxes 

1. Custom duties (3) 847-852. 

a. Kinds (1) 717. 

b. Importance for federal revenue (1) 713. 

c. Extent to which the foreign exporter can be made 
to pay the duty (1) 713-715; (4) 704-706. 

d. Merits of customs duties (1) 715. 

e. Defects of customs duties (1) 715-717. 

2. Internal revenue duties. 

a. Sources (1) 717-718. 

b. Defects (1) 718-719. 

c. Advantages (1) 719. 

IX. Property Taxes 

1. General property tax (3) 860-862. 

a. Importance. 

b. Faults of the general property tax (1) 727-729; 
(4) 706-708. 

c. Reforms (1) 729-731. 

X. Business Taxes 

1. Transaction taxes (1) 719-720. 

2. Corporation taxes (1) 731-733; (3) 865-869. 



TAXATION 127 

3. Business and license taxes (1) 733-734. 

4. War profits tax. 

5. Excess profits tax. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXXIV. 

(3) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 246, 247, 249-253. 

(4) Hamilton, W. H., Current Economic Problems, Sees. 340- 
345. 



128 ELEMENTS OF ECONOMICS 



Part XVI — Economic Policies 



CHAPTER XLII— THE POLICY OF MERCANTILISM 

I. The Historical Background of the Mercantilistic Doc- 
trine 

II. Important Mercantilistic Doctrines (2) 1019-1021 

1. Emphasis upon nationalism. 

2. Importance of the precious metals. 

3. Encouragement of foreign trade. 

a. Import duties and export bounties. 

b. Colonization. 

c. Establishment of great trading companies. 

d. Commercial treaties. 

4. Doctrine of a favorable balance of trade. 

5. Encouragement of manufactures. 

a. Desirability of cheap raw materials. 

b. Desirability of cheap foodstuffs. 

c. Desirability of large population. 

6. Encouragement of the shipping industry. 

III. Criticism of Mercantilism as an Economic Policy 

IV. The Reaction Against Mercantilism (2) 1021-1022 
V. Survivals of Mercantilistic Ideas 

References 

(1) Ely, R. T., Outlines of Economics, pp. 42-43, 744. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 390, 
391. 

(4) Hamilton, W. H., Current Economic Problems, Sec. 19. 



POLICY OF LAISSEZ-FAIRE 129 



CHAPTER XLIII— THE POLICY OF LAISSEZ-FAIRE 

I. The Historical Background of the Laissez-Faire Phil- 
osophy (2) 1032-1034 

II. The Nature of the Laissez-Faire Philosophy 

III. Leading Principles of the Laissez-Faire Philosophy 

1. Natural laws and rights (2) 1026-1032; (4) 90-91. 

2. Individual liberty (4) 98-103. 

3. Enlightened self-interest (4) 91-95. 

4. Free competition (2) 939-940. 

IV. Reasons for the Strong Hold of the Laissez-Faire 
Philosophy in the United States (2) 103^1036 

1. Reaction against the economic and political oppres- 
sion prevailing in European countries from which 
early American settlers came. 

2. Militant individualism of the American settler, 

3. Universality of opportunity prevailing in a new coun- 
try. 

4. Fluidity of classes. 

V. Some Characteristic Expressions and Results op the 
Laissez-Faire Philosophy in American Life 

VI. Criticism of the Principles of the Laissez-Faire Phil- 
osophy (2) 1044-1049; (4) 105-107; 118-120 

VII. Reasons for the Decline of the Laissez-Faire Philoso- 
phy 

1. The growth of large scale industry and decline of 
competition. 

2. The exploitation of the weaker members of society. 

3. The growth of economic interdependence. 

4. The limitation of economic opportunity. 

References 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 358, 

392-397. 
(4) Hamilton, W. H., Current Economic Problems, Sees. 41- 

45, 48-51, 57. 

9 



130 ELEMENTS OF ECONOMICS 



CHAPTER XLIV— THE POLICY OF GOVERNMENT 

CONTROL 

I. Earlier Conceptions of the Functions of Govern- 
ment (2) 1036-1037 

In his Wealth of Nations, Adam Smith enumerates three 
functions to which under a system of natural liberty 
government should conEne itself: 

1. Protection of society against aggression from with- 
out. 

2. Promotion of security within a society. 

3. Establishment and maintenance of public institu- 
tions which would not be established on private initi- 
ative. 

II. Modern Conceptions of the Functions of Government 
(2) 1050-1057 

III. Grounds for the Abandonment of Laissez-Faire Prac- 
tices AND for the Extension of Government Control 
(2) 1037-1040; (4) 109-112 

To the more distinctively political functions of govern- 
ment have been added many economic functions and par- 
ticularly regulatory powers over various economic ac- 
tivities. Among the chief grounds occasioning the ex- 
tension of government control over our industrial life 
have been the following: 

1. The appearance of many human evils in our indus- 
trial life (4) 107. 

2. The realization that government may be made an in- 
strument of democratic control, through which re- 
forms may be effected (4) 120-123. 

3. The failure of competition adequately to regulate the 
price and quality of goods (2) 922-924. 

4. The growth of industrial combinations threatening 
to dominate economic and political life. 

5. The dislocation of ordinary industrial activities and 
forces by the world war. 



POLICY OF GOVERNMENT CONTROL I3I 

IV. General Purposes to be Achieved by the Extension 
OF Government Control Over Industrial Life 

1. Eegulation of the conditions under which industrial 
activities may be carried on. 

2. Maintenance of competition. 

3. The regulation of competition. 

4. The greatest public welfare. This has sometimes 
meant the substitution of government ownership for 
government control of an industry. 

V. Scope of the Law as a Means for the Exercise of 
Government Control (2) 59^597; 1011-1013; 1040- 
1043. 

1. The prohibitive intervention of the law (2) 1016- 
1017. 

2. The promotive intervention of the law (2) 1017-1018. 

3. The mandatory intervention of the law (2) 1018- 
1019. 

VI. Some Administrative Boards for the Exercise of Gov- 
ernment Control in the U. S. 

Some of these boards were established prior to the war, 
but most of them came into existence because regulation 
was compelled by the war. They may be roughly classi- 
fied according to the particular industrial field with 
which they are most concerned. 

1. Public utilities of transportation and communication. 

a. Interstate Commerce Commission. 

b. State Public Utility Commissions. 

c. Federal Eailroad Administration. 

2. Banking and finance. 

a. Federal Reserve Banking Board. 

b. Federal Farm Loan Board. 

c. War Finance Corporation. 

3. Industrial combinations. 

a. Federal Trade Commission. 

4. Labor in industry. 

a. State Industrial Commissions. 

b. War Labor Board. 

c. War Labor Policies Board. 

d. U. S. Employment Service. 



132 ELEMENTS OF ECONOMICS 

5. Foreign trade. 

a. Tariff Commission. 

b. War Trade Board. 

6. Conservation of war resources. 

a. Food Administration. 

b. Fuel Administration. 

c. War Industries Board. 

7. Shipping. 

a. U. S. Shipping Board. 

b. U. S. Shipping Board Emergency Fleet Corpora- 
tion. 

VII. Some Causes for the Success of the War Administra- 
tive Boards 

1. Existence of adequate governmental machinery ex- 
tending to every sub-division of the country. 

2. Volunteering for government service of some of the 
greatest industrial experts of the country. 

3. Patriotic cooperation of producers and consumers. 

VIII, Incongruity of Regulatory Measures and Prosecu- 
tion Under Anti-Trust Laws (5) Chapter XIV. 

IX. Continuation of Government Control After the 
War 

References 

(2) Marshall, L. C, Readings in Industnal Society, Sees. 175, 
233, 349, 350, 387, 389, 398-401, 404, 407. 

(4) Hamilton, W. H., Current Economic Prohlems, Sees. 52, 
54, 58. 

(5) Van Hise, C. R., Conservation and Regulation in the United 
States During the World War. 



PROPOSAL OF SOCIALISM I33 



CHAPTER XL V— THE PROPOSAL OF SOCIALISM 

The term "Socialism'' is properly applied to three things: 
1) to a possible organization of society; 2) to a body of prin- 
ciples or theories ; 3 ) to a political movement. The movement is 
based upon socialistic principles and has as its objective the at- 
tainment of the socialistic state. 

I— The Socialistic State 

I. Nature of Socialism as a Possible Future Organization 
OF Society (1) 627-628, 632; (2) 36-41, 614-616; (4) 
752-757 

1. Socialization of the most important material instru- 
ments of production. Not all capital goods would be 
socialised, but for the most part private property in 
capital goods would be abolished; the ownership of 
small scale capitalistic enterprises in which there 
could be no possibility of exploiting labor might be 
left in private hands. 

2. Management of production by society. 

3. Distribution of social income by society. Various 
bases of distribution have been suggested including 
(a) mechanical equality, (b) need, (c) sacrifice, (d) 
productivity. 

4. Retention of private property in consumption goods. 

II. Conceivable Steps in the Acquisition of the Collec- 
tive Ownership of Industry (4) 769-770 

1. Voluntary bestowal. 

2. Socialization with pensioning of the present owners. 

3. Governmental competition • forcing private enterprise 
from the field. 

4. Confiscatory taxation. 

5. Confiscation. 

6. Purchase. 



134 ELEMENTS OF ECONOMICS 

III. Differentiation of Socialism from Other Plans of So- 
cial Improvement or Reconstruction 

1. Profit-sharing. 

2. Consumers' and producers' cooperation. 

3. Singletax reform. 

4. Anarchism (1) 638-639. 

5. Syndicalism (1) 631; (2) 616-617. 

6. Communism (1) 631-632; (4) 751-752. 

7. Social reform (1) 636. 

IV. The Strength of Socialism 

1. Emphasis upon a scientific organization of production 
(1) 632-633. 

a. Elimination of the wastes of competition (2) 927- 
931. 

b. Elimination of the wastes of industrial depressions. 

c. Elimination of unemployment. 

2. Emphasis upon a more equitable distribution of wealth 
(1) 633. 

V. The Practical Difficulties Involved in Socialism 
(1) 634-636; (4) 773-777 

1. Mistaken objections to socialism. 

a. Failure of communistic experiments presages the 
failure of socialism. 

b. Socialism contemplates the abolition of all forms of 
private property. 

c. Socialism is identical with anarchism. 

d. Alleged hostility of socialism to religion and the 
family. 

e. Socialism contemplates the equality of all men 
(4) 770-772. 

f. The socialistic state would be hampered by a lack 
of the "accumulation of capital" (4) 775-777. 

g. Socialism is the negation of liberty. Distinction 
between positive and negative liberty. Socialism 
does not remove all options. 

2. Some practical difficulties involved in the socialistic 
program. 

a. Difficulty of increasing wealth production while 
shortening hours, so as to make possible the greatly 
increased incomes described by some socialists. 



PROPOSAL OF SOCIALISM 135 

b. Difficulty of maintaining efficiency on the part of 
the workers. Fear of unemployment is removed. 
Irksomeness of monotonous labor. 

c. Difficulty of selecting and retaining efeective lead- 
ers. Psychology of the "laurel wreath". Possi- 
ble bad effects upon originality, upon the require- 
ments of persons 'engaged in the higher pursuits, 
and upon the distribution of labor forces so that 
production may be harmoniously developed. 

d. Difficulty of determining upon a generally accept- 
able standard of distribution, at once just and suffi- 
ciently stimulating to evoke the best efforts of all. 

e. Difficulty suggested by Malthusianism (4) 775. 

II — Socialistic Theory— Marxian 

I. The Economic Interpretation of History 
II. The Doctrine of the Class Struggle 

III. The Marxian Theory of Value and its Corollaries 

1. Labor theory of value. 

2. Right of labor to the full product. 

3. Theory of surplus value. 

4. Exploitation theory of interest and profits. 

5. Iron law of wages. 

6. Doctrine of increasing misery. 

7. Theory of crises. 

III_The Socialist Movement 

I. Varieties of Socialism (1) 628-631 

1. Utopian socialism. 

2. Christian socialism. 

3. Fabian socialism. 

4. State socialism. 

5. Scientific socialism (Marxian). 

II. Some Illustrations of Socialistic Appeals to the; 
Masses (4) 757-769 



136 ELEMENTS OF ECONOMICS 

III. Development of the Socialist Movement Prior to 
THE War (1) 636-638 

IV. Present Status of the Socialist Movement 

Eeferences 

(1) Ely, R. T., Outlines of Economics, Ch. XXX. 

(2) Marshall, L. C, Readings in Industrial Society, Sees. 13, 
244, 245, 353. 

(3) Marshall, "Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 266-267. 

(4) Hamilton, W. H., Current Economic Problems, Sees. 361- 
375. 



SUGGESTIONS CONCERNING TOPICS 137 



Suggestions Concerning Topics 



Purpose 

The purppse in the preparation of a topic is to gain familiar- 
ity with economic literature, a more intensive knowledge of the 
given economic subject, and training in the organization of 
thought. Students expecting to major in economics may per- 
haps through the preparation of these topics find some field of 
interest which will later furnish a thesis field and subject. 

Reference Material 

1. The card catalogue of books of the University and the 
Historical Libraries. This is arranged by topic, title of 
book, and author. 

2. The Readers' Guide to Periodical Literature and the 
Readers' Guide Supplement. Consult the more scientific 
rather than the popular magazines. 

3. The card catalogue of public documents of the library 
found in the document room of the library. 

Method 

1. Prepare a carefully selected bibliography, following this 
model : 

Workmen's Compensation. 

Ely, E. T., Outlines of Economics, (1916), pp. 588-591. 
Fisher, W. C, "Field of "Workmen's Compensation in 

U. S.," American Economic Review V, (1915), pp. 

221-278. 

2. Prepare the first topic in outline form. Any chapter of 
this Outline such as "Chapter XXIX — Industrial Peace" 
may serve as a model for the general form. The outline 
should be so detailed, however, and contain so many com- 
plete statements that it amounts to a synopsis. 



138 ELEMKXTS OB^ ECONOMICS 

3. Prepare the second topic, chosen from the "Special War 
Topics List," in the form of an essay. The newness of 
the material makes this desirable. An abbreviated topical 
outline or table of contents should precede the essay. 

4. Wherever in the topic a quotation is made, or the treat- 
ment is based substantially upon the work of some other 
writer, appropriate credit should be given in a footnote 
appearing at the bottom of the page. The first time a 
given work is cited, reference to it should be made in full, 
thus: 

R. B. Westerfield, "The Reserves Situation in the 
Federal Reserve System," American Economic Re- 
view, VII, (1917), p. 515. 
A subsequent reference to the same work on the same page 
of the topic may be made thus, provided no other refer- 
ence intervenes: 
Ihid., p. 520. 
A subsequent reference to the same M^ork on some other 
page of the essay may be made thus : 
R. B. Westerfield, op. cit., p. 518. 



SUGGESTED TOPICS 139 



Suggested Topics 

Choose One 

1. The Significance of the Industrial Eevolution. 

2. The Conditions Favoring the Establishment of Capitalism. 

3. Specialization and Inter-Dependence. 

4. The Effects of Machine Industry upon Labor. 

5. The Problems Raised by the Advent of Women into In- 

dustry. 

6. The Nature and Functions of the American Federation of 

Labor. 

7. The Relative Merits of the Open and the Closed Shops. 

8. The Shorter "Working Day. 

9. The Economic and Legal Aspects of Strikes. 

10. The Economic and Legal Aspects of Boycotts. 

11. The Compulsory Arbitration of Industrial Disputes. 

12. The Canadian Experience with the Industrial Disputes 

Investigation Act. 

13. The Experience of Australasia with Compulsory Arbitra- 

tion. 

14. Trade Agreements. 

15. The Ford Profit Sharing Plan. 

16. The Forms of Safety and Health Legislation. 

17. Federal Child Labor Legislation. 

18. Minimum Wage Laws in Theory and Practice. 

19. The Failure of Employers' Liability to Provide Adequate 

Compensation for the Injured Employee., 

20. The Organization and Functions of the Wisconsin Indus- 

trial Commission. 

21. The Nature of the Immigration Problem. 

22. The Restriction of Immigration. 

23. The Nature and Functions of the Chicago Board of Trade. 

24. The Nature and Functions of the New York Stock Ex- 

change. 



140 ELEMENTS OF ECONOMICS 

25. Organized Speculation — Prohibition or Regulation? 

26. Social Insurance Against Industrial Accidents. 

27. Old Age Pensions vs. Old Age Insurance. 

28. The Causes of and Remedies for Unemployment. 

29. The Feasibility of Compulsory Unemployment Insurance. 

30. The Services of and Dangers in Assessment Insurance Com- 

panies. 

31. The Wisconsin Experiment with State Insurance. 

32. Crises: Causes and Control. 

33. The Growth in Federal Control over the Railways. 

34. The Organization and Functions of the Wisconsin Railway 

Commission. 

35. The Organization and Functions of the Interstate Com- 

merce Commission. 

36. Compulsory Investigation in the Settlement of Disputes be- 

tween Railways and their Employees. 

37. Government Ownership of Railways. 

38. The Cooperative Marketing of Farm Products. 

39. The Need of Agricultural Credit in the United States and 

What the Federal Farm Loan Act Does to Meet it. 

40. Historical and Conservation Aspects of the Land Policy 

of the United States. 

41. The Single Tax Program — Its Merits and Demerits. 

42. Unearned Increment Taxation. 

43. The Shifting and Incidence of Various Forms of Taxes. 

44. The Principles and History of Inheritance Taxation. 

45. The Principles and History of Income Taxation. 

46. The General Property Tax — Its Faults and Their Remedy. 

47. The Laissez-Faire Philosophy in American Economic Life. 

48. Manifestations of the Policy of Government Regulation. 

49. Historical Varieties of Socialism. 

50. Socialism, as a Body of Doctrine. 

51. Socialism, as a Political Movement. 

52. Socialism a Possible Economic Organization of Society. 

53. The Socialistic Doctrine of the Class Struggle. 

54. The Strength and Services of Socialism. 

55. The Practical Difficulties Involved in Socialism. 



SPECIAL, WAR TOPICS 141 



Special War Topics 



Choose One 

1. The Economic Necessity of Saving in War Time and the 

Ways of Accomplishing It. 

2. The Unusual Business of War vs. Business as Usual. 

3. The Influence of the War upon the Government's Prosecu- 

tion of Industrial Combinations. 

4. Governmental Fixation of Prices. 

5. The War and the Causes of the Eecent Eise in the Price of 

Silver Together with a Discussion as to the Wisdom of 
Eecent Silver Legislation. 

6. War Time Services of the Federal Eeserve Banking Sys- 

tem. 

7. Effect of Eate of Exchange on Government Financing in 

War Time. 

8. Is an International Boycott of Germany after the War 

Feasible and Desirable? 

9. How to Develop Trade with Latin America. 

10. The Needs and Future of American Shipping. 

11. The War Work of the Tariff Commission. 

12. The Effect of the War upon Wages and Labor Organiza- 

tions in the United States. 

13. The Effect of the War upon the Future Eate of Interest. 

14. The Mobilization of Women for Industry as a Eesult of 

the War. 

15. The Attitude and Eecord of the American Federation of 

Labor in the War. 
16. ' The I. W. W. and the War. 

17. The Work of the National War Labor Board. 

18. The ' ' Eeeonstruction " Program of the British Labor Party. 

19. Eegulations of Hours and Conditions of Labor during the 

War. 

20. The Problems Eaised by the Dearth of Unskilled Labor. 



X42 ELEMENTS OF ECONOMICS 

21. Immigration during and after the War. 

22. The Effects of the War upon Organized Speculation. 

23. Probability of Depression or Prosperity Immediately after 

the War. 

24. How the Federal Government Came to Undertake the Op- 

eration of Our Railways. 

25. What Governmental Operation of the Railways May Ac- 

complish that Will Affect the Problem of Government 
Ownership. 

26. Government Insurance of Our Soldiers and Sailors. 

27. The Effect of War Risks upon the Business of Life Insur- 

ance. 

28. Governmental Marine Insurance in Great Britain and the 

United States. 

29. Methods of Locating Returning Soldiers and Sailors upon 

the Land. 

30. A Comparative Study of the Provisions of the Various 

Liberty Loans. 

31. The Merits of Financing the War Partly with Taxes and 

Partly with Bonds. 

32. The War Time Bond Issues of Great Britain. 

33. The Justification and the Provisions of the Excess Profits 

Tax. 

34. Changes in our Federal Income Tax Law as a Result of the 

War. 

35. The Work of the Food Administration. 

36. The Work of the Fuel Administration. 

37. The Extent and Success of Governmental Regulation in 

War Time. 

38. The Effects of the War upon the Socialist Movement in the 

United States. 

39. The Justification and the Provisions of the War Profits Tax. 

40. The Organization and the Activities of the United States 

Employment Service. , 



ERRATA 

Page 29. The reference to Sees. 105-106, 110-112, 142, 144, 
150 of the Materials for ilie Study of Elementary Economics 
should be to Reacliiigs in Industrial Society. 



